SIE Ready🧾 Equity Securities · Lesson 1 of 5 · 5 min
Common Stock: Owners Last in Line
🗳️ Own one share and you are a part-owner with a vote. Own the wrong share count in a cumulative-voting company and you might still elect a director.
💡 Key idea
Cumulative votes = shares × seats, stackable on one candidate. Outstanding = issued − treasury, and treasury stock has no vote or dividend.
🧠 Why it matters
Common stock is ownership. Holders usually vote for the board, get dividends only if the board declares them, have LIMITED LIABILITY (loss capped at the investment) and are paid LAST in a liquidation. VOTING: under STATUTORY voting a holder casts one vote per share for each seat with no stacking. Under CUMULATIVE voting the holder gets shares × seats votes and may put them all on one candidate; this helps minority holders. Example: 200 shares, 4 seats = 800 votes either way; only cumulative lets all 800 go to one person. SHARE COUNTS: authorized (charter maximum) ≥ issued (ever sold); outstanding = issued − treasury (repurchased) shares. Treasury shares neither vote nor receive dividends. Common PAR VALUE is an accounting figure, unrelated to market price.
📈 In the real world
🏭 Priya holds 300 shares of Harbor Tools, which is electing 3 directors. Her rep explains the company uses cumulative voting, so she has 900 votes and may give all 900 to the one candidate who backs a dividend policy she likes. Under statutory voting she would have had 300 votes per seat and no way to stack them.
📌 Takeaways
- Common holders: vote, limited liability, last claim on assets
- Cumulative = shares × seats, may stack; statutory = shares per seat, no stacking
- Outstanding = issued − treasury; treasury shares get no vote or dividend
📖 Terms in this lesson
Common stock: Ownership in a corporation with voting rights and a residual claim on assets, paid after creditors and preferred holders.
Limited liability: A shareholder can lose no more than the amount invested in the stock.
Statutory voting: Voting in which a shareholder may cast at most one vote per share for each open seat.
Cumulative voting: Voting in which a shareholder may pool all votes (shares times seats) on one candidate, helping minority holders win a seat.
Treasury stock: Issued shares the company has bought back; they do not vote, earn no dividends and are not counted as outstanding.
Outstanding shares: Issued shares held by investors: issued shares minus treasury stock.
✅ Test yourself
An investor owns 500 shares and 3 board seats are up for election under cumulative voting. What is the most votes the investor can cast for a single candidate?
- 1,000 votes
- 167 votes
- 1,500 votes
- 500 votes
Answer: C · 1,500 votes
Cumulative voting gives shares × seats = 500 × 3 = 1,500 votes, which can all go to one candidate. 500 is the per-candidate limit under statutory voting; 1,000 and 167 come from wrong arithmetic.
A company has issued 10 million shares and holds 1 million in its treasury. How many shares are outstanding?
- 10 million shares
- 9 million shares
- 1 million shares
- 11 million shares
Answer: B · 9 million shares
Outstanding = issued − treasury = 10 million − 1 million = 9 million. Treasury shares were repurchased, so they are issued but no longer outstanding, and they carry no vote or dividend.
What does limited liability mean for a common stockholder?
- The holder cannot lose money if the stock is listed
- The holder is paid before bondholders in a bankruptcy
- The most the holder can lose is the amount invested
- The company must pay the holder a minimum dividend
Answer: C · The most the holder can lose is the amount invested
Limited liability caps a stockholder's loss at the investment; creditors cannot pursue personal assets. Common holders are paid after bondholders, dividends are never guaranteed, and listing does not prevent losses.
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