What does common stock represent for shareholders?

Common stock represents ownership in a company for shareholders. When individuals purchase common stock, they are essentially acquiring a share of the company's equity. This means they have a claim on a portion of the company's assets and profits proportional to the number of shares they own. Shareholders of common stock typically have voting rights in corporate matters, which allows them to influence decisions such as electing the board of directors and approving major corporate actions.

While common stockholders hope to earn dividends, there is no guarantee that dividends will be paid, as this is dependent on the company's profitability and decision-making by the board of directors. Furthermore, common stock does not represent a loan or debt ownership; rather, it indicates an investment where the shareholder takes on risk in exchange for potential rewards if the company performs well. Overall, owning common stock implies a shared interest in the success and growth of the business, which distinguishes it from other financial instruments.