What is common stock?

Common stock represents shares of ownership in a corporation. When individuals purchase common stock, they are essentially buying a piece of the company, which gives them a claim on a portion of the company's assets and earnings. This ownership stake typically comes with voting rights, allowing shareholders to have a say in certain corporate decisions, such as electing board members or approving significant corporate actions.

Common stockholders benefit from potential dividends and appreciation in the value of their shares, which can result from the company's growth. It is important to distinguish this from other financial metrics or components of a financial statement, such as liabilities or net income, which do not represent ownership in a company but rather reflect obligations and profits. This clear definition helps clarify the significance of common stock within the broader context of corporate finance and investment.