Ownership of company common stock: Overview, definition, and example
What is ownership of company common stock?
Ownership of company common stock refers to the holding of shares or equity in a corporation that represent a portion of ownership in that company. Common stockholders, or shareholders, have voting rights in major company decisions, such as electing the board of directors and approving significant changes to company policy. They are also entitled to a portion of the company’s profits, typically paid in dividends, and may benefit from the increase in the stock’s market value. Common stock represents a claim on the company’s assets and earnings, although this claim is subordinate to the claims of creditors and preferred shareholders.
For example, an individual who buys 100 shares of a company’s common stock becomes a part-owner of the company, with the right to vote at shareholder meetings and receive dividends if declared.
Why is ownership of company common stock important?
Ownership of company common stock is important because it provides shareholders with the potential to earn returns through dividends and capital appreciation as the company grows and becomes more profitable. It also grants them a say in how the company is run, which can influence corporate decisions. For businesses, offering common stock is a way to raise capital without taking on debt. For investors, owning common stock is an opportunity to participate in the company’s success and share in its financial rewards.
For individuals and institutional investors, owning common stock is a way to build wealth, gain exposure to the company’s performance, and have a voice in the company’s future direction.
Understanding ownership of company common stock through an example
Imagine an individual investor purchases 1,000 shares of a technology company at $10 per share. Over time, the company’s stock price increases to $50 per share, and the investor benefits from the rise in value, turning their $10,000 investment into $50,000. Additionally, the company pays dividends of $1 per share, which gives the investor $1,000 annually in dividend income.
In another example, an employee receives stock options as part of their compensation package. These options give them the right to buy company common stock at a set price, allowing them to become an owner of the company and participate in its growth as the stock price increases.
An example of an ownership of company common stock clause in a contract
Here’s how an ownership of company common stock clause might appear in an agreement or corporate document:
“Each holder of Company Common Stock shall be entitled to one vote per share held at any annual or special meeting of shareholders. In the event the Company declares dividends, holders of Common Stock shall be entitled to receive their pro-rata share of such dividends, subject to the terms set forth in the Company’s Articles of Incorporation.”
Conclusion
Ownership of company common stock represents a stake in the company, with rights to vote on important matters and receive dividends. It offers investors a chance to participate in the company’s growth and success while providing businesses with a means to raise capital. Whether for individual investors or employees, owning common stock is a way to engage with and benefit from a company’s performance in the market.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.