Common stock is the standard equity class representing residual ownership in a company—after debts and preferred equity are satisfied.

How it works

At incorporation, founders typically receive common shares, often subject to vesting and repurchase rights. Employees usually get options to buy common (or early exercise into restricted common). Preferred investors buy a separate class with liquidation preferences, anti-dilution, and protective provisions. Common usually carries voting rights; preferred may vote on an as-converted basis for major decisions. In an acquisition, proceeds flow through the waterfall: creditors, then preferred per its preferences, then common if anything remains. Public companies list common on exchanges; venture-backed companies keep common private until IPO or tender events. Founders may hold multiple classes—founders’ preferred or high-vote common—in some structures.

Why it matters

• Founders: Your upside is common upside. High preferences or participating preferred can wipe out common in moderate exits.
• Operators: ISO/NSO grants reference common fair market value from 409A valuations. Understanding preferences explains why “we sold for a lot” can still mean minimal employee payout.
• Investors: Preferred converts to common when sale proceeds exceed preferences; until then, classes have different economic interests.

Common mistake

Assuming all shareholders share sale proceeds pro rata by ownership percentage. Liquidation preferences reorder payouts; common can be deeply subordinated.

Related ideas

Preferred stock, stock options, liquidation preference, 409A valuation, and as-converted ownership connect directly to common stock.