Six benefits to owning common stock

Everyone will rank the six benefits in their own order of preference, although most people will put income near the top of the list. In the order presented in this chapter, the six benefits are:

(1) Income the right to a proportional share of the company’s income, either paid out as a dividend or retained and reinvested in the business.

(2) Control the right to vote on company affairs, in particular the election of directors, the selection of external auditors, and proposed amendments to the company’s charter or by-laws.

(3) Information the right to “inspect the company’s books,” usually satisfied by providing stockholders with summary financial statements and commentary in the company’s annual and quarterly reports.

(4) Freedom to sell the ability to sell ownership in the company to anyone else at any time without the need for approval.

(5) Limited liability freedom from legal responsibility for company errors beyond the amount of the money invested in the company.

(6) Residual claim the right to a proportional share of any value remaining after all other claimants have been satisfied, particularly in bankruptcy.