So I'm just starting to look into investing and planning for my future, and I was wondering what common stock is? Maybe it's a dumb question?! I've seen other types of stock referred to like preferred stock and such, and I just wanted to get a clear understanding of what common stock is.… show moreshow less
Common stock is defined as a type of security that serves as evidence of ownership, imparts voting rights, and gives the holder claim on the assets and income of the firm. Common stock is, essentially, the bottom rung of the securities ladder. Common stock holders and common stock comprise the bulk of the securities industry. The common stock listing and price is what you see publicized by NASDAQ and other stock exchanges. Common stock holders elect directors of the firm and thus participate in determining its policies and direction. But their claim on the firm's assets are subordinate to those of debenture holders, preferred stock holders, creditors, and statutory agencies. Common stock holders take a larger risk when investing in securities. Common stock constitutes the equity capital of the firm which is never paid back and is lost if the firm fails. Common stock usually has a par value--the amount for which each share is sold for when first issued--but has no guaranteed value afterwards. In bad years, common stock holders may receive little or no dividends at all. But, in good years, there is no limit to the amount they may receive except the limits imposed by the government, the lenders, or the financial position of the firm. Some argue that common stocks are best if seen as a long-term investment that will have good years and bad years. What differentiates common stock from preferred stock is that common stock holders are paid dividends after all other financial obligations are met, including paying preferred stock holders. To sum up, common stock is the stock available to the public that guarantees the holder basic voting rights and claims to the assets of the firm after all other outstanding obligations, including preferred holders. Common stock is what you see listed in the stock exchanges.
A common stock is a stock that gives you basic voting rights and legal rights to the underlying assets of the company in the event of a liquidation. It also gives you rights to dividends after any preferred stock shareholders are paid out. It's what is typically seen when you talk about any company's stock. So, if you look for a quote for GOOG, then you'll see the price for a share of common stock. If you buy one, then, the next time there's a shareholder's meeting, your brokerage will send you a proxy voting statement. Don't expect to unseat Sergey Brin and Eric Schmidt with your vote, though! Also, if GOOG issues a dividend, then you'll get paid (or a reinvested fractional share) that dividend.
That's a basic explanation, nothing special, and no, your question wasn't dumb! You asked a question that a bunch of other people weren't brave enough to ask!
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