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What are Common Shares?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 16 June 2017
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    2003-2017
    Conjecture Corporation
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Common shares are shares of stock that are understood to signify equity ownership in a corporation. Holding this type of stock in a company provide the investor with some basic privileges, such as limited voting rights, a return based on the profitability of the company, and possibly some benefit from appreciation in the securities associated with the company. All rights and privileges connected with common stock are included with other types of shares that provide broader benefits and privileges.

When it comes to having a voice and vote in the operation of the company, common share holders typically are granted the privilege of participating in the election process for directors. It is unusual for these investors to be allowed to nominate candidates for a vacancy among the directors, although the bylaws of some companies do extend this privilege. Investors are sometimes able to vote their total number of shares, although in other situations, each investor holding will be allowed only one vote, regardless of the number of shares in his or her possession.

It is important to note that common shares do not carry the same level of benefits as preferred shares of stock. Along with minimal voting privileges, this type of investor rarely enjoys a fixed dividend on the shares. Instead, it is more common for the dividend to vary, based on the profitability of the company. This type of discretionary dividend arrangement means that the return on the investment is likely to vary from one period to the next.

In the event that a company fails, people holding common shares usually do not receive any compensation until after all bond holders have been satisfied and preferred share holders have received payment for their shares. Any remaining resources can then be used to make at least a partial settlement to common shareholders. Due to the financial complexities of settling the debts of a failed company, it may take years to realize any compensation for these shares.

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