What is common equity or common stock?

Common equity, also referred to as common stock, is typically the stock held by founders and employees (usually employees have options to purchase common stock). This equity normally has fewer rights associated with it than preferred equity.

Common stock has the lowest priority in the event of a situation where proceeds must be distributed between shareholders such as a bankruptcy proceeding or in mergers and acquisitions.

Sometimes when a convertible note converts into equity, a portion of the investment amount will convert into shares of common stock.