Common Stock Common Stock
Common stockholders participate in the earnings stream of the corporation through dividends paid and capital gains made on a per share basis. Owners of common stock are responsible for the election of the Board of Directors, appointment of Senior Officers, the selection of an auditor for the corporate financial statements, dividend policy and other matters of corporate governance. This may also be done on a proxy basis, whereby a third party may be ceded the shareholders right to vote by the shareholder.
The responsibilities associated with common stock mean the investor participates to a greater extent in the fortunes of the firm. Capital gains, through the increase in market price of the firm's stock, accrue to a greater extent to the holder of common stock than to the holder of preferred stock.
Common stockholders also have a couple of significant rights should the business invested in be wound down: limited liability to the creditors of the firm and a residual claim on any assets or income derived once all prior claims (mortgages, bondholders, creditors, etc.) have been satisfied.
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