The common stock receives an equal part of the profits on each share to be distributed after all other obligations of the company have been satisfied.
Further explanation:
Common stock and profit distribution:
The common stock refers to corporate equity ownership. The common stock is a distribution of the ownership of a company by the way of its share capital. The common stockholders are the owners of the company and take participate in the management of the company. The following is the payment hierarchy of the securities in a company.
1. Debentures, loan, and bonds (Debt)
2. Preference stock
3. Common stock
First, the company pays interest on the loan taken. After the payment of the loan, the company pays the preference dividend to the preferred stockholder. After the payment of all the outside liabilities, the remaining profit is distributed among the common stockholders. Therefore, the common stock has the highest risk and the amount of dividend depends on the remaining profit and the company’s policies.
Thus, the common stock receives an equal part of the profits on each share to be distributed after all other obligations of the company have been satisfied.
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Answer details
Grade: Senior School
Subject: Economics
Chapter: National income
Keywords: type, stock, receives, equal, part, profits, each, share, distributed, after, all, other, obligations, company, have been satisfied.
