Common Stock

TL;DR

The base equity class held by founders and employees, with voting rights but no preference rights or dividends.

Common stock is the default equity class. Founders, employees, and advisors typically hold common; investors hold preferred. Common shareholders vote on standard matters but do not have liquidation preference, dividend preference, or anti-dilution protection.

In an exit, common holders are paid only after all preferred preferences have been satisfied. This is why founder ownership percentage on the cap table can be misleading — what matters at exit is the actual cash distribution after preferences cascade through.

Worked example

A founder holds 4M common shares with 1 vote per share. In a sale at $200M, after $50M of preferred liquidation preferences are paid, common splits the remaining $150M pro rata — founder receives $150M × (4M ÷ 12M total) = $50M.

Common pitfalls

• Equating common share percentage with eventual cash percentage at exit.
• Granting common with unintended tax consequences (file the 83(b)).
• Ignoring how preferred preferences erode common payouts in moderate exits.

When this shows up in a pitch deck

Cap-table content for the data room; deck doesn't discuss share classes directly.

Related terms

• Preferred Stock — The equity class issued to investors, carrying special rights such as liquidation preference, anti-dilution protection, and protective covenants.
• Liquidation Preference — The right of preferred shareholders to be paid a defined amount before common shareholders receive any proceeds in a liquidation event.
• Vesting — The schedule by which equity grants are earned over time, typically 4 years with a 1-year cliff for founders, employees, and advisors.
• 83(b) Election — A US tax election letting restricted-stock recipients pay tax on the grant-date value (not at vesting), often saving early-stage founders meaningful tax.
• Fully Diluted Shares — The total share count assuming every option, warrant, convertible note, SAFE, and reserved pool has been exercised or converted.

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