Common shares represent a type of equity that provides ownership in a company. Investors in common shares are entitled to vote at shareholder meetings and may receive dividends, although these dividends are not guaranteed.
When assessing common shares, it’s important to identify their characteristics and compare them to other equity instruments, like preferred shares or bonds. One critical characteristic of common shares is the right to residual claims on a company’s assets, which comes into play during liquidation scenarios.
In this context, which of the following statements about common shares is true?