Common stock is the default form of equity ownership most people mean when they say "I own shares" — carrying rights and risk that differ meaningfully from preferred stock.
The Rights and Risk
Common shareholders get a vote on major corporate matters (board elections, mergers) — typically one vote per share — and a claim on the company's assets and earnings, but that claim is residual: in a bankruptcy, common shareholders are paid only after bondholders and preferred shareholders, and are real-world often left with little or nothing. Dividends on common stock are never guaranteed and can be cut or eliminated at the board's discretion, unlike preferred stock's fixed dividend priority.
Worth knowing: Common stock's voting rights are meaningful at scale — large institutional shareholders regularly use them to influence board composition and major decisions — but for an individual retail holder, the practical value is usually indirect: it's the mechanism that keeps management accountable to shareholders collectively.
Someone Prioritizing Upside Potential: Common stock's uncapped upside (versus preferred's fixed dividend) fits this goal.
Someone Concerned About Bankruptcy Risk: Understand common stock's residual claim ranks last — a genuine risk factor for financially weaker companies.
Own Common Stock the Way
- Understand the residual claim ranks below debt and preferred stock.
- Don't assume any dividend is guaranteed.
- Use your voting rights, even as a small individual holder, via proxy votes.
See preferred stock explained for the point of comparison.
