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is what most people think of when they think of owning part of a company. It is the security most frequently issued by companies and represents an ownership interest in a company. In most cases, common stock carries the right to vote for directors and to vote on other matters affecting the company. It also entitles holders to receive notice of shareholder meetings and to attend them. Rights to review corporate records or receive financial reports also customarily accompany common stock ownership. Certificates are usually issued to holders of common stock (and other company securities) to evidence the stock's existence. Common stock can pay cash dividends based on company earnings but only after preferred stockholders receive their dividends. Dividends are usually paid at the discretion of the company's board of directors but are the exception, not the rule, with most growing, privately held companies. Holders of common stock participate last in company liquidations. Company creditors, debenture holders, and preferred stockholders get paid in that order, before holders of common stock. Common stock can be issued in one or more classes. One frequently used company structure authorizes the issuance of two classes of common stock, which differ only in the number of directors each class is entitled to elect. This arrangement can be used to insure an investor a seat on a company's board of directors while, at the same time, insuring that control of the board will remain with management. For example, Class A stock might be issued to management and give its holders the right to elect three directors. Class B stock, which entitles its holders to elect only one director, is then issued to the investor. Even if the investor holds twice as many shares of stock as do the Class A stockholders, he can still elect only one director. In this way, even if management holds less than half of the company's stock it can still control the company and its board of directors. See: Board of Directors, Control, Cumulative Voting, Debentures, Equity, Junior Common Stock, Options, Preferred Stock, S Corporations, Voting Agreements. |
