27 Apr Common Stock

Common Stock

Common Stock is the most basic type of equity of a corporation that can be held by the shareholders. It is issued at the formation of the corporation. By default, all shares of a corporation are common. The founders of a corporation typically take common stock, as well as seed, angel and friends and family investors.  By holding common shares, an individual is entitled to vote the shares at shareholder meetings. As a company matures and gathers additional investment, new investors may look to take preferred stock instead of common. Preferred stock differs from common in that, in liquidity events of a company such as a merger or acquisition, the holders of preferred stock often are returned their capital contributions and potentially a return on their investment before the holders of common receive any payments. Preferred stock may differ from common based on the special protections and conversion provisions applicable to preferred stock. Holders of common may hold physical share certificates representing their shares in the corporation, although share certificates are not required in many jurisdictions. Unless the articles of incorporation provide for preemptive rights or other antidilutive protections, common stock holders are often subject to dilution as new shareholders enter the company’s equity.