Typical rights of common shares
- One vote per share at general meetings, in most standard structures
- Pro-rata right to dividends, if and when the board declares any
- Pro-rata right to remaining proceeds on a sale or liquidation, after preferred shareholders are paid
- No guaranteed return or fixed payout, unlike preferred shares with a liquidation preference
Common shares versus preferred shares
| Factor | Common shares | Preferred shares |
|---|---|---|
| Who usually holds it | Founders, employees | Investors |
| Exit priority | Paid after preferred | Paid first, up to preference amount |
| Price paid | Usually nominal or low | Set by round valuation, often much higher |
| Extra protections | Generally none | Anti-dilution, liquidation preference, sometimes board seats |
Dual-class structures
Some founders create a separate class of common shares with extra votes per share, to retain control while raising outside capital. This is more common at later-stage or high-profile companies and needs specific legal structuring, and it changes the ownership percentage calculation used for voting control even though it is not the default in most jurisdictions.
Common shares, the basics people ask about
- Is common shares the same as ordinary shares?
- Yes, in almost all cases. Common shares is the US term, and ordinary shares is the standard European equivalent, describing the same basic share class.
- Do common shareholders always get paid something on exit?
- Not necessarily. If the sale proceeds do not exceed the preferred shareholders' liquidation preference, common shareholders may receive nothing.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.