What is Common Stock?
Common stock represents basic ownership in a company. Common shareholders own a percentage of the company, can vote on major decisions, and receive dividends if declared. Founders, employees (through exercised options), and sometimes early investors hold common stock.
Common stock sits at the bottom of the preference stack in an exit, meaning preferred shareholders get paid first.
Common vs Preferred Stock
Preferred stock (held by investors) has special rights: liquidation preference, anti-dilution protection, board seats, and sometimes dividends. Common stock has none of these protections but is simpler.
In a successful exit, the distinction often doesn't matter. In a modest exit, preferred shareholders might get paid while common shareholders get nothing.
Employee Equity
Employee stock options convert to common stock when exercised. This aligns employee interests with founders, who also hold common. All common shareholders benefit when the company succeeds and preferred shareholders convert.
Common Stock Ownership % = Shares Owned ÷ Total Common Shares Outstanding × 100
Note: Calculate fully diluted for true ownership picture
Founder ownership:
- Total common shares issued: 8,000,000
- Founder A: 3,000,000 shares (37.5%)
- Founder B: 2,000,000 shares (25%)
- Employee options: 1,500,000 shares (18.75%)
- Option pool available: 1,500,000 shares (18.75%)
Founders own 62.5% of common stock combined.