Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy, as outlined in the corporation’s charter. Common stockholders are on the bottom of the priority ladder for ownership structure. In the event of liquidation, common shareholders have rights to a company’s assets only after bondholders, preferred shareholders and other debtholders have been paid in full. This makes common stock riskier than debt or preferred shares.
Early investors typically receive preferred stock in exchange for their investment in the company, meaning they can negotiate distinct voting rights and liquidation preferences.