Bob Brinker's Marketimer

  Tuesday November 21, 2017

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WHAT IS COMMON STOCK?
Learn even more about this topic with the Encyclopedia of Personal Finance™

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.

Owners of 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 stocks.




LEARN EVEN MORE WITH THE ENCYCLOPEDIA OF PERSONAL FINANCE. CLICK HERE!

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