What are common shares?

Common stock is a form of security issued by a public company. Essentially, its purchase provides the shareholder with a specific amount of equity interest in the issuing company, as well as various rights and privileges related to the operation of the corporation. Common stock is the most widely issued type of public stock and is the type of choice for most initial offerings to the general public.

Owning common stock usually comes with a number of privileges. Shareholders are privileged to vote on at least some decisions relevant to the functioning of the corporation, such as the selection of people to serve on a board of directors. Depending on the exact regulation on the issuance of shares in the company's bylaws, whether these shares also allow investors to participate in other voting activities.

In exchange for buying shares, investors also receive a dividend on their shares, based on the company's performance. Dividends are paid at regular intervals. Most companies also provide supporting documents to shareholders about stock performance and how dividends are calculated.

Other companies may issue other types of shares. Preferred stock usually has additional privileges and a different schedule or formula for paying dividends. However, not all companies choose to issue preferred shares and, in fact, the bylaws of some companies do not allow the issuance of any type of guarantee other than common shares.

In the event that a corporation goes bankrupt and the assets are liquidated, the value of outstanding shares may be affected. Before investors can get a partial return on the failed investment, all outstanding bonds issued by the company must be liquidated. In addition, preferred shareholders will have priority over common shareholders. Essentially, the company's obligations must be dealt with in accordance with the decision of the court of jurisdiction on the liquidation of the company before investors holding common shares receive any compensation.

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