common stock
Imagine a group of friends who want to start a business together but do not want to argue forever about who owns how much. They could cut ownership into equal slices and let people buy as many slices as they like. Each slice is a share, and the basic, standard slice of ownership in a corporation is called a share of common stock. Owning one share means you own a tiny piece of the whole company.
Common stock is the foundational form of corporate ownership. Common stockholders usually have three rights: they vote on big decisions (such as electing the board of directors), they may receive dividends if the company chooses to pay them, and if the company is ever wound up they share in whatever is left after all debts and other claims are paid. On the balance sheet, common stock appears inside the stockholders' equity section. If a company sells 1,000 shares with a par value of 1 each for 10 each in cash, it records 1,000 in the Common Stock account (1,000 shares times 1 par) and the extra 9,000 in a separate account called additional paid-in capital.
Common stock matters because it represents the residual owners — the people who get paid last but who own the upside. This is the key honest point: common stockholders rank behind lenders and behind preferred stockholders. If the company fails, they may receive nothing; if it thrives, the rewards (in rising value and growing dividends) flow largely to them. 'Common' does not mean cheap or low-quality; it simply means the ordinary, default class of ownership that most investors hold.
A startup issues 500 shares of common stock with a 1 par value, selling each for 20 cash. It records 10,000 cash received: 500 goes to Common Stock (500 x 1) and 9,500 goes to additional paid-in capital. The buyers now collectively own the company and may vote to elect its directors.
Cash received splits into par value (Common Stock) and the excess (paid-in capital).
Common stockholders are paid last — after creditors and preferred stockholders — so they bear the most risk but also keep the upside. 'Common' is the default ownership class, not a sign of low value.