Common stock

Common stock is the nominal or par value of all shares issued by the company to its equity holders. It sits at the top of the shareholders equity section of the balance sheet, representing the most junior claim on the company's assets and earnings after every creditor, bondholder, and preferred shareholder has been satisfied.

The figure recorded on the balance sheet is almost always trivially small relative to the actual capital raised from shareholders. It reflects only the par value of each share, a largely historical legal construct set at an arbitrarily low amount such as one cent or one dollar per share. The remainder of the proceeds from share issuances is recorded separately in additional paid-in capital.

Common stockholders are the residual claimants of the business, meaning they bear the first loss if the company deteriorates and capture the full upside if it prospers. This is why equity is described as the riskiest layer of the capital structure and commands the highest required return.

The rights attached to common stock typically include voting rights on major corporate decisions such as board elections, mergers, and capital structure changes, the right to receive dividends if and when declared by the board, and the right to participate in any residual assets in a liquidation after all senior claims are settled.

Some companies issue multiple classes of common stock with different voting rights, a structure common in technology companies where founders retain supervoting shares to maintain control even as their economic ownership is diluted through equity issuances. This creates a separation between economic interest and governance power that institutional investors and proxy advisors have increasingly scrutinised as a corporate governance concern.