What is common stock?

Definition of Common Stock

Common stock is the type of ownership interest (expressed in "shares") that exists at every U.S. corporation. The owners of common stock are known as common stockholders, common shareholders, or simply as stockholders or shareholders. [A relatively few corporations issue preferred stock in addition to its common stock.]

Generally, the holders of common stock elect the corporation's board of directors, vote on mergers, and participate in a corporation's success or failure through increases or decreases in the market value of their shares of common stock. The cash dividends on common stock often increase as the corporations become more successful.

A drawback of common stock is that the common stockholders are last in line to receive payments if a corporation is dissolved.

Common Stock is also the title of the general ledger account that is credited when a corporation issues new shares of common stock. (The amount of the credit will depend on the state's regulations.) The balance in Common Stock will be reported in the corporation's balance sheet as a component of paid-in capital, a section within stockholders' equity.

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