2.1 Common Stock Basics
Common stock is the fundamental equity ownership instrument. Stockholders vote on the board of directors, receive declared dividends, and assume the greatest risk in liquidation.
Key FINRA Exam Takeaways
- Common stockholders represent residual equity owners with limited liability.
- Statutory voting: 1 vote per share per candidate (favors large majority shareholders).
- Cumulative voting: Votes = shares × seats (allows pooling on 1 candidate; protects minority shareholders).
- Preemptive rights allow purchasing newly issued shares before public offering to prevent dilution.
- Common stockholders have lowest claim priority in bankruptcy liquidation.
Knowledge Checkpoint • Section 2.1
In a corporate liquidation under Chapter 7 bankruptcy, which of the following claimants has the LOWEST priority of claim?