Characteristics of Common Stock

Stock represents the basic form of ownership of a corporation. It can be broadly classified as common and preferred stocks.

Common stocks are the most common form of equity investment. All corporations issue common stock and are controlled or owned by the shareholders or owners. Following are some of the most important features and characteristics of common stock:

1) Common stocks provide a share of ownership in the company, unlike other type of securities like bonds, which do not.

2) Common stockholders have the right to vote at annual meetings, with each share entitling the holder to one vote. They will also receive audited financial statements of the company.

3) Common shareholders are entitled to receive dividend payment, if they are authorized by the corporation's board of directors. Dividends can be paid in the form of cash or stock. However, dividend payments are not guaranteed but are normally based on the financial success of the corporation.

4) When a company issues new shares, existing common shareholders have the preemptive rights to buy additional shares directly from the company, often below the market price, before they are offered to other potential investors.

5) In the event of dissolution or liquidation, common shareholders have last claim on the company's assets. They are the last to claim any amount remaining from the liquidation of corporate assets after the creditors, bondholders and preference shareholders are paid.

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