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LSDefine
Simple English definitions for legal terms
common stock
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A quick definition of common stock:
Common stock is a type of ownership in a company. People who own common stock are called shareholders. They have the right to vote for who will be on the company's board of directors. They also have the right to get a share of the company's profits, called dividends, when the board of directors decides to pay them. If the company goes out of business, shareholders may get some of the money left over after the company pays its debts and other obligations.
A more thorough explanation:
Common stock is a type of stock that represents ownership in a company. People who own common stock are called shareholders and they have certain rights:
- Voting rights: Shareholders can vote to elect the members of the board of directors. Usually, each share of common stock gives the shareholder one vote. However, this can be changed in the company's charter.
- Dividends: Shareholders may receive a portion of the company's profits in the form of dividends. The company's board of directors decides when to pay dividends and how much to pay.
- Asset ownership: If the company goes bankrupt and has to sell its assets, shareholders may have a claim to some of the money from the sale. However, creditors and owners of preferred stock get paid first.
For example, let's say you own 100 shares of common stock in a company. You would have the right to vote for the board of directors, and if the company made a profit, you might receive a dividend. If the company went bankrupt and had to sell its assets, you might be able to get some of the money from the sale, but only after the creditors and preferred stock owners were paid.