Investing in Common Stocks for Beginners-Part 1
Successful investment in stock market requires an understanding of the different characteristics and features of the stocks.
Common stocks are the most common form of stocks an investor will encounter in the financial market. It represents a certificate of ownership of a company. Here we will look at the two important features of common stocks limited liability and liquidation rights.
Common stockholders have limited liability, in other words, their liability is limited to those stocks. They cannot be forced to pay anything out of their own money in the event of bankruptcy. They are fully protected against any financial obligations incurred by the organizations.
If a company goes bankrupt and liquidates all its assets, the common stockholders have the right to receive their share of sale proceeds. However they are the last to receive money after the creditors, bondholders and preference stockholders are paid.
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ABOUT THE AUTHOR
The author, Loke Yuen Wong, holds an MBA from Heriot-Watt University (UK) and a BCom degree from The University of Adelaide (Australia).