Common stock valuation

1. Features of common stock (You may review common stock learned from TCA 221)

a. Residual claim on income and assets (after debt holders and preferred stock holders had their claims)

b. Has voting rights

c. Proxy - can designate the voting power to the management at the annual meeting.

d. Two different voting procedures:

Majority voting - One share has one vote. A board of directors (BOD) position is elected by a simple majority.

Cumulative voting - One share can have a number of votes equal to the number of BOD members to be elected. It gives minority shareholders the power to elect a director (The minority shareholders may cast all votes to one candidate to increase his or her chance of being elected).

e. Limited liability - Shareholders' liability is limited to the amount of their investment in the company.