Introduction
Common stock (also called common shares or ordinary shares) represents ownership in a company. Shareholders get voting right while electing the board of members. It is the most popular and widely issued type of security to raise capital. In this post we are going to describe some major characteristics of common stock in brief.
Features Of Common Stock
The main features of common stock can be expressed as follows:
1. Long-term Source
It is a long-term source of financing. It is most popular method to raise permanent capital.
2. Par Value
Issuer sets the par value of common stock. Generally, par value of stock is divisible by 10 such as $10, $20, $50, $100 etc.
3. No Maturity
Another feature of common stock is that it lacks maturity period. It is a permanent capital and exists till the existence of the company.
4. Ownership
Common stock holders are the real owners of the company. So, it provides ownership to the investors.
5. Limited Liability
In case of business failure, stockholders lose their investment. But their liability is limited to their investment or par value.
Also Read:
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6. Residual Claim
Stockholders have residual claim on the income and other properties in case of failure, liquidation or bankruptcy.
7. Voting Right
Common stockholders get voting right in the election of board of members and they can take part in annual general meet of the company.
Key Characteristics Of Common Stock In Short
* Common shareholders have voting right and dividend right
* Shares can be easily sold or bought on the open market
* Common stockholders are not personally liable for the company's debt because of limited liability
* Common stock has no fixed returns
* It is good option to build wealth
* It is more riskier than other forms of financial instruments such as bond and preference stock.
