Definition of Common Stock
Common stock is a type of security that provides ownership in a company. People who own common stock are able to elect directors, vote on corporate policies and just generally have a say in the way that the company is run.
As a general rule, holders of common stock receive one vote per share, and key issues are put to the vote with shareholders usually able to vote by proxy if they’re unable to attend a physical meeting. Key topics for votes include whether to elect a new member to the board of directors, whether to acquire or merge with another company or whether to approve dividends. Common stock owners are usually also eligible to receive an annual report.
There are both pros and cons to owning common stock. As well as the advantage of having a say in the way that the company is run, common stockholders often make more money as it can yield higher returns over the long term.
However, this only applies if the company does well. If it starts to perform badly and runs into financial difficulties, common stock owners can quickly get left behind. That’s because if the company’s assets are liquidated, the profits from that are paid to bondholders, preferred shareholders and debtholders before the remnants (if any) are dished out to common shareholders. Many companies offer all three types of security (bonds, preferred stock and common stock).
Common stock is usually traded on stock exchanges and can be bought and sold by both companies and individuals. This means that if a company wants to issue common stock, they need to first go through an initial public offering (IPO). In some cases, common stockholders are eligible to receive dividends from the company.
In the United States, the most common stock exchanges are the NYSE (New York Stock Exchange) and the NASDAQ (National Association of Securities Dealers Automated Quotations Stock Market). Other countries have their own stock exchanges, like the FTSE (Financial Times Stock Exchange) in the United Kingdom.
Traders are able to use these exchanges to buy and sell common stock, with its price going up and down based on supply and demand. Traders earn money from common stock either from selling the stock when its price goes up or from receiving dividend payments.
Individual stock prices tend to be affected by news from the company, such as earnings reports, major hires and acquisitions and both positive and negative public relations. The stock market as a whole is often used as a general indicator of the health of the national and international economy.
Where does common stock get reported?
In most cases, common stock should be reported in a company’s balance sheet under the “stockholder’s equity” section.
What are growth stocks?
Growth stocks is the name that’s used to refer to stocks that are growing in value because the company’s earnings are continuing to rise.
What was the first ever common stock?
Established in 1602, the first ever common stock was the Dutch East India Company, which was listed on the Amsterdam Stock Exchange.
