What is common stock?

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

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.

Generally, the holders of common stock elect the corporation's board of directors and will participate in a corporation's success through increases in the market value of their shares of common stock and perhaps through cash dividends.

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

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