What Is Common Stock Equity?

Geri Terzo

Investors who purchase common stock equity obtain equity ownership in a corporation. Additionally, investors gain the permission to vote on major corporate events, and the influence that each voter has is based on the number of shares owned. Common stock investors may be rewarded with dividends based on corporate profits and the direction that a business's management team prefers to take. The price of common shares is determined based on supply and demand in the financial markets.

Investors who purchase common stock equity obtain equity ownership in a corporation.
Investors who purchase common stock equity obtain equity ownership in a corporation.

Common stock is a type of equity that is most actively traded in the financial markets. These shares are often bought and sold with the help of a stockbroker. Common stock equity shares trade on a major stock exchange where the buying and selling of financial securities is regulated. Investors gain exposure to these shares either by trading stocks individually or investing in mutual funds, which are portfolios that contain a number of different shares and that are run by professional managers for a fee.

Every year, publicly traded companies hold annual shareholder meetings in which investors are welcome to attend. It is during these gatherings that holders of common stock equity are offered a chance to vote on major company happenings. A common vote could be on a potential change to a company's board of directors when a member is up for reelection. Also, in the event that a company has announced a major transaction, such as a merger or acquisition, shareholders of common stock have the right to cast a vote in favor of or against the deal. Usually, shareholders can vote once for each share of common stock that is owned, and in the event that investors cannot attend a meeting, votes can still be cast via proxy.

Buying common stock equity offers investors an opportunity to share in corporate profits. It also, however, exposes investors to the risk of potential losses. The price of common stock equity is based on investor demand and the supply of shares, and the market value can advance or decline dramatically in a single trading session. Many different factors influence supply and demand, including internal corporate conditions and external factors that occur in an industry or the economy.

When corporate profits exceed expectations, a company's management and board of directors may decide to distribute dividends to investors. This is an additional and potential reward that can occur during a quarter or for the year. Dividends may be paid in cash or with additional shares of stock.

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