12.4 : Common Stock Features

Common stock, also known as common equity, represents ownership in a company. It is the most frequently issued type of stock used by companies to raise capital. Investors who hold common stock are considered partial company owners and have certain rights and features associated with their ownership.

Key Features of Common Stock:

1. Voting Rights: Common shareholders typically have the right to vote on important company matters, such as electing board members or approving major decisions like mergers and acquisitions.
2. Dividends: While not guaranteed, common shareholders may receive dividends, a portion of the company's profits distributed periodically.
3. Capital Appreciation: Common stockholders can benefit from increased stock prices, which offer the potential for high returns.
4. Residual Claims: In the event of liquidation, common shareholders have the last claim on the company's assets, after debt holders and preferred shareholders.
5. Limited Liability: Shareholders are only liable for the invested amount, protecting their assets.
6. Market Liquidity: Common stocks are often traded on public stock exchanges, making them easy to buy and sell.

Common stocks are a cornerstone of many investment portfolios. They offer growth potential but also carry a higher risk than fixed-income securities.