WHAT IS COMMON STOCK?
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Stock is your opportunity to own a portion
of corporate America.
A company sells ownership rights to raise money at start-up or
for expansion purposes. It sells these ownership rights as shares?or stocks?in
the organization. Stock certificates list the name of the owner and the number
of shares owned.
common stock are entitled to receive distributions of earnings on the
principal they have invested in the corporation. For instance, if the board of
directors decides to issue a distribution, or dividend, of $0.30 per share at
the end of one quarter, and you own 100 shares, you would receive a dividend of
$30. However, common shareholders receive a dividend only after the company has
distributed a set dividend to preferred shareholders. Sometimes, you may
have the opportunity to reinvest your dividend in additional shares through a
dividend reinvestment plan.
Common shareholders usually have the additional right to vote in
elections of company officers and on other key issues, such as executive
compensation and acquisitions. These elections may take place during the
corporation's annual meeting or at a special meeting. Prior to the meeting,
shareholders receive a proxy notice about the election or other issues on the
agenda. This notice also usually contains a form for you to complete and return
if you would like to assign your voting rights to a proxy who will attend the
meeting and vote on your behalf.
Besides having a voice in the running of the corporation, owners
of common stock have the opportunity to earn additional profits from
appreciation of the stock's value as the company grows.
Millions of Americans participate in the free market
system through stock ownership. Read on to learn how you, too, can purchase