Common Stock
Definition
The most basic class of stock in a company. Common stock is what founders, employees, and option holders receive. It has voting rights but sits below preferred stock in the payment hierarchy. In a liquidation event, common stockholders are paid last — after debt holders and preferred stockholders.
Real-World Example
As an employee, you exercise your options and receive 10,000 shares of common stock. In an acquisition for $100M, after $60M in liquidation preferences are paid to preferred stockholders, you share in the remaining $40M proportionally based on your common stock ownership.
Common Mistake
Assuming common stock and preferred stock have the same value. In many exit scenarios (especially modest acquisitions), common stock can be worth significantly less than preferred stock — or worth nothing at all if the exit price does not exceed liquidation preferences.
Why It Matters
As an employee, you will almost certainly hold common stock. Understanding that your shares have different economic characteristics than investor shares is essential for realistic equity valuation.
Related Terms
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