Benefits of common share ownership
Common shares are securities that represent part-ownership of a corporation. As owners of the business, common shareholders vote on the selection of management and are entitled to all profits of the company after interest charges, taxes, and preferred dividends are paid. These profits may be paid out to common shareholders as dividends or reinvested in the company to increase the owner's equity. In some cases, trust indentures associated with more senior securities, such as bonds or preferred shares, may limit the ability of directors to pay dividends unless certain conditions, such as the payment of all preferred dividends in arrears, are met.
Owners of common shares have limited liability. No claims can be made upon the owners for liabilities of the company in the event of bankruptcy. If a shareholder has been issued shares but has not finished paying for them at the time of bankruptcy, liability to the company for the unpaid amount is limited to the subscription price. Since most statutes no longer allow firms to issue shares until they are fully paid for, this circumstance seldom occurs. Common shares are non callable and can be held indefinitely. On the other hand, shares may be traded so that the investor in the shares of a public company is usually not "locked in" to the investment.
As owners of the business, all shareholders have the right to receive complete financial data on the company's affairs. If the business is not being managed in the best interests of the shareholders, the shareholders can exercise their control through their voting powers - by electing a new Board of Directors or by opposing resolutions at shareholders' meetings. A proxy, which is a legal transfer to another party of a shareholder's right to vote, allows shareholders who can not attend to participate at the annual meetings. Proxies are often solicited by directors and other shareholders to allow them to acquire the minimum number of votes needed to pass certain resolutions.
Disadvantages of common share ownership
One of the risks involved in common share ownership is the possibility of not receiving dividends in the desired amount or at the time expected, since common dividends are not a contractual obligation of the company unless they are declared. Common shareholders also have the last claim on a company's assets in the event of liquidation. Thus, the owners run the risk of not only receiving less than their original investment, but of waiting years for the settlement because of legal complications.
