Common stock represents ownership of a company, and are the most common form of stocks issues by companies. They give the common stock holder the right to share in company profits, and to vote on issues determining corporate policy and the composition of the board of directors.
The term 'common stock' is most commonly used in the United States, and in the other parts of the world people refer to common stocks as voting shares, ordinary shares, equity shares (United Kingdom and common wealth countries).
The capital yield of common stocks typically outperform other forms of investments due to capital growth (increase of common stock value), but also pose more risk to individuals owning common stocks due to the price volatility of common stock determined by market conditions and the possibility of future bankruptcy.
Since common stocks represent ownership of a company, individuals owning common stocks have a right to claim a portion of the companies profits in the form of dividends. The amount of dividends payed to common stock holders is proportional to the amount of company profits and to the amount of common stock held by each individual.
Dividends are typically paid out quarterly (other dividend payout arrangements are possible) if the company issuing common stocks reports excess earnings. Common stock holders can receive dividends in two forms: a cash dividend or a stock dividend. A cash dividend is issued directly into a common stockholders bank account or through a dividend check which can be deposited immediately for cash. A stock dividend, also known as dividend reinvestment, increases the amount of common stocks a common stock holder owns within a company.
Dividend reinvestment is a way for companies to reward their common stock holders by allowing them to gain additional common stock without having to purchase stocks through a brokerage firm. Companies make dividend reinvestment is an attractive option for common stock holders by allowing common stock holders to gain additional common stock in a company at a discounted price (typically between 1-10%) without paying any commission fees.
Types of common stock
Common Stock Definition
Different Types of Stocks | Desjardins Online Brokerage
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- Internal Revenue Code section 409aSection 409A applies to compensation that workers earn in one year, but that is paid in a future year. This is referred to as nonqualified deferred compensation.
- Strike PriceThe strike price (or exercise price) of an option is the price per share at which the owner of the option can buy (call option), or sell (put option), the underlying security.
- Qualified Small Business StockQualified Small Business Stock (QSBS) is a tax benefit whose purpose is to encourage long term investment in small businesses and startups. Gains on investments that qualify as QSBS can be eligible for reduced or deferred federal tax.
- Preferred StockPreferred stock (also called preferred shares, preference shares or simply preferreds) is a type of stock which may have any combination of features not possessed by common stock; including properties of both an equity and a debt instrument.
- Founder Preferred StockThe “Founders' Preferred” is a special class of stock that founders can convert into any series of preferred stock sold by the company to VC's in a future round of financing. The founders would only choose to convert these shares when they plan to sell those shares to VC's or other investors in that round of financing.
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