What are Common Shares?
Most investors only purchase with common shares, either because they are too unfamiliar with preferred shares, or they simply enjoy the greater capital gains benefit that comes with common shares. For these reasons, these investments are the most commonly traded on the world market. Investing in common stock is very simple; the majority of price information available in the form of stock quotes are all on common stock.
What Common Shares Are
Common stock, or common shares, are simply ownership in a company in the simplest form. Generally, common stock pays a dividend, although unlike preferred stock, common shares do not have a dividend guarantee. The stock prices you see in the stock quote lists are noted by common stock or preferred stock; the majority of major market stock trading hands is all common stock.
Common stock have voting rights, thus owners have a say in the larger transactions within a corporation. When it is time to make a major decision, common stock owners are called to issue a vote on whether the company should proceed with the decision or kill the decision via voting. One infamous corporation, Berkshire Hathaway, keeps its stock price high to limit the number of people making decisions, and in the process, allows each shareholder to become more personal to the company. This is not the norm, however, as most corporations shoot for lower stock prices between $20 and $100 to spread the ownership among many different owners, and to allow extra appreciation that generally results from lower stock prices.
Common Stock Has Extra Risk
Common stock owners carry more risk than do preferred shareholders, but generally receive larger payouts if the stock does well. In the case of bankruptcy, preferred shareholders are at the top of the list for liquidation payouts and receive their full investment before common shareholders are repaid. Though there is additional risk in holding common stock, the benefits of greater capital appreciation are seen in common stock when the company is performing well. Many investors turn to common stock holdings before investing in other types of stock, although the major markets, such as the New York Stock Exchange and NASDAQ marketplace, do sell different types of stock.
What Common Stock Shares Are Not
Unlike preferred stock, common stock does not have the same priority for repayment or disbursement of dividends. The dividend calendar also works in a completely different manner; for preferred shares, if the dividend is not paid on one of the pay periods, it is carried over until the next cycle. With common stock, the dividend payments can be stopped at any time and do not require the company to make further payments if it is so decided. Common stock shareholders all have the right to vote, whereas the majority of preferred shareholders are nothing more than debt holders and have no right to vote. A very small portion of preferred shares do allow the investor to vote on extreme events, but these issues are few and far between. Common stock shares are very seldom diluted to the same extreme as preferred stock, which are often manipulated as "blank check" shares before a potential buyout to threaten an inevitable sale and shift of ownership in the company.