BBS/BBA/MBS Exam Notes

What is Common Stock? Key features, Value & Rights of Common Stockholders

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Common Stock

Common Stock

Common stock represents shares of ownership in a corporation. Its owners bear the ultimate risk of loss and reap the benefits of success. However, dividends and assets upon dissolution are not guaranteed to common stockholders. Nonetheless, they are owners of the corporation and will be the first to profit if the company is successful. The most popular way to invest in corporation is to own shares of common stock.

Key features, Value & Rights of Common Stockholders

Some of the rights of common stockholders are as follows:

  • Voting right
  • Ownership in a Portion of the Company
  • Right to Transfer Ownership
  • Entitlement to Dividends
  • Right to Sue for Wrongful Acts
  • Preemptive right
  • Limited Liability

Common stocks are valued by par value, market value and book value. It is also a method of measuring of stock value also.

Par value:

Par value is a per share amount which is appear in stock certificate. It is also called a face value or a default value when initial issue is known as par value.

Market value:

Market value is the value of a company according to the stock market. It is current market value which is determined by secondary market and demand and supply of the stock.

Book value:

Book value for common share is a determined by owners of common shares in a company to determine the level of safety associated with each individual share after all debts are paid accordingly.

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