What is common stock?

Common stock represents ownership in a corporation and is the most fundamental form of stock issued. When investors purchase common stock, they are essentially buying a share of the company, which grants them ownership rights and the ability to vote on certain corporate matters, such as elections to the board of directors and other significant corporate policies. This type of stock allows shareholders to participate in the growth of the company, and they often benefit from any increase in the company's market value through price appreciation.

Additionally, while common stockholders may receive dividends, these payouts are not guaranteed and can fluctuate based on the company's profitability and decisions made by management. This differentiates common stock from preferred stock, which typically offers guaranteed dividends and has priority in asset distribution upon liquidation. Common stockholders have residual claims on earnings after all other expenses and obligations have been met.

The other options incorrectly describe common stock characteristics or relate to alternative stock forms, such as preferred stock, which offers different rights and benefits. This is why the right answer highlights common stock as a basic form issued specifically by corporations, emphasizing its role in ownership and the associated voting rights.