Common Stock

Posted in Finance, Accounting and Economics Terms, Total Reads: 1200

Definition: Common Stock

These are securities which entitle the holder ownership rights in the company. Holding common stock has its own pros and cons in a firm.

Advantages of common stock

  • Right to vote on important matters in the company including selection of board of directors
  • Right to gain from the progress of the company by receiving dividends and capital appreciation of the common stock
  • Sometimes common stockholders also receive “preemptive rights” which allow them to maintain proportional ownership in the firm on the issuance of new stock.

However, there is one big drawback in holding common stock which is junior status to the creditors and bondholders of the company in case the company is liquidated. Also, the dividends received by the stock holders are not a sure receivable. They might get postponed or cancelled in the event the company is not able to generate sufficient profits.


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