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Common Stock |
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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
Common Stock, or common shares, are the basic shares of a company that can be purchased by any investor (so long as the company is publicly held.) Generally when people own stock in a company they own common shares, however other types of stock do exist. Common shares differ from preferred stock in the rights that they offer to their shareholders. While common shareholders do have voting rights at shareholder meetings, they have the last claim on a company's earnings or assets. That is, before any dividends are paid to common shareholders the preferred shareholders and debt holders of the company are paid. Furthermore, if a company files bankruptcy, the common shareholders will be the last to receive any payments from liquidation.
Some companies have different classes of common stock. Class A and Class B stocks might provide shareholders with different voting rights, but it can also happen that a given class does not provide voting rights. As an example, Berkshire Hathaway Inc. has two classes of common stock designated Class A and Class B. A share of Class B common stock has the rights of 1/30th of a share of Class A common stock except that a Class B share has 1/200th of the voting rights of a Class A share (rather than 1/30th of the vote). Each share of a ClassA common stock is convertible at any time into 30 shares of Class B common stock, but holders of Class B shares are not able to convert them into Class A shares. This mechanism allows arbitrage between the two types of stock.
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