Common stock is the basic class of company ownership held by founders and employees, carrying a residual claim on value that ranks behind preferred stock. It is usually what stock options exercise into. Common is the foundation of the cap table.

Founders care because common stock is what you and your team actually own. Its value depends on what is left after investors take their preferences.

What common stock is

Common stock represents ownership with a residual claim. Holders get what remains after creditors and preferred holders are paid. In a strong exit, common can be very valuable. In a weak exit, common may get little or nothing.

Under Delaware law, a corporation may create different classes of stock. DGCL Section 151(a) lets the certificate of incorporation, or the board when the certificate authorizes it, set the designations, preferences, and rights of each class. Common stock is typically the class with the fewest special rights and the broadest voting.

Common stock versus preferred stock

The contrast with preferred stock is the key idea. Preferred sits senior. It gets paid first and often carries protective vetoes. Common sits junior. It gets paid last but usually holds broad voting and the upside if the company does well.

Founders and employees hold common. Investors in a priced round hold preferred. The employee option pool is carved out of common, and options usually exercise into common shares.

Common stock, vesting, and the cap table

Founder common stock almost always comes with vesting. Vesting means you earn your shares over time. If you leave early, the company can repurchase the unvested portion.

Every share of common stock shows up on your cap table. Getting the common stock structure right at formation is one of the highest-leverage things a founder does. Fix it early, because cleaning it up later during a company formation review is slow and costly.

This is general information, not legal advice.