Common Stock

What common shareholders own

A common share represents a fractional ownership claim in the corporation.

That claim can include rights to:

• vote on specified matters
• receive declared dividends
• participate in residual value after senior claims

The exact rights come from:

• charter documents
• corporate law
• share class terms

Not every common share class has identical voting rights.

Residual claim means junior claim

In a liquidation, the priority generally places common shareholders behind:

• secured creditors
• unsecured creditors
• other senior obligations
• preferred shareholders where applicable

Common holders receive residual value only after higher-priority claims are satisfied.

That is why common stock can become worthless even when a company still owns substantial assets.

Market value vs. par value

Common stock can have a tiny accounting par value.

SIGA Technologies reported common stock with:

$0.0001 par value

while the shares traded in the public market at prices determined by investors.^[2]

Par value is an accounting and legal feature.

It is not the market price.

Authorized, issued and outstanding shares

These terms are different.

Authorized shares Maximum shares permitted under the corporate charter unless amended.

Issued shares Shares the company has issued historically.

Outstanding shares Issued shares currently held by investors rather than treasury.

A company can therefore authorize far more shares than are currently outstanding.

Real 2026 example

SIGA reported:

• 600 million shares authorized
• approximately 71.84 million common shares issued and outstanding

at June 30, 2026.^[2]

The difference represents unused authorization capacity, not automatic dilution.

New shares must still be issued through an actual corporate transaction.

Common stock and market capitalization

Market capitalization is:

share price × shares outstanding

If:

• share price: $25
• outstanding shares: 100 million

market cap:

$2.5 billion

The common-stock balance-sheet account does not determine market cap.

Common stock vs. shareholders’ equity

Shareholders’ equity can include:

• common stock
• APIC
• retained earnings
• AOCI
• treasury stock

The common-stock line itself can be tiny because it often records par value.

Book equity is much broader.

Common stock vs. preferred stock

Preferred stock can have:

• dividend priority
• liquidation preference
• redemption rights
• limited or different voting rights

Common stock generally sits below preferred in economic priority.

Common holders often receive more upside when the company grows because their residual claim is not capped in the same way.

Terms vary by security.

Dividends are not guaranteed

A corporation can pay common dividends when declared by its board and permitted by applicable law and financial condition.

A history of dividends does not create the same contractual payment obligation as bond interest.

The board can:

• increase
• reduce
• suspend
• eliminate

the common dividend.

Common stock can be diluted

Dilution can occur through:

• new public offerings
• employee equity compensation
• share-funded acquisitions
• convertible securities
• warrants

More shares can reduce each existing share’s percentage ownership.

That is why diluted EPS matters.

Buybacks can reduce outstanding shares

A company can repurchase common stock.

If shares are retired or held as treasury:

outstanding share count can fall.

This can increase EPS even when net income is flat.

Economic value creation still depends on the price paid and financing source.

Multiple classes

A company can issue multiple common-stock classes with different:

• voting power
• conversion rights
• transfer restrictions

Economic rights can be similar while governance rights differ sharply.

A one-share-one-vote assumption is therefore unsafe.

Stock splits

A stock split increases the number of shares while reducing price per share proportionally, all else equal.

It does not mechanically increase company value.

If 1 share at $100 becomes 2 shares at approximately $50 each:

the investor still owns roughly $100 of stock before market movement.

Common stock can fall to zero

Common shareholders absorb residual business risk.

If liabilities exceed recoverable asset value in distress:

creditors can consume the remaining enterprise value.

Common stock can therefore become worthless even though the company continues through restructuring or bankruptcy.

Common stock and EPS

Basic EPS commonly divides income available to common shareholders by weighted-average common shares.

The numerator and denominator must both relate to the common-equity claim.

Preferred dividends and NCI can require adjustments before reaching earnings available to common.

Common mistakes

"Par value is the stock price."

No.

"Authorized shares are already diluting shareholders."

No.

"Common dividends are guaranteed."

No.

"Owning common stock means ranking equally with creditors."

No.

For any common stock, identify the share class, voting rights, outstanding count, dilution sources, senior claims and capital-return policy. Common ownership is valuable only to the extent that the residual enterprise value and future cash flows exceed the claims ahead of it.