Introduction

Welcome to Common Stock - the foundation of equity investing and one of the most heavily tested topics on the Series 7 exam.

Exam Weight: Approximately 18 equity questions estimated across units 8-11.

What You'll Learn

In this unit, you'll cover:

• Share Classifications: The hierarchy of authorized, issued, outstanding, and treasury shares - and the formulas that connect them
• Characteristics of Common Stock: Ownership rights, limited liability, transferability, and the role of transfer agents and registrars
• Rights of Common Stockholders: Voting methods, pre-emptive rights, dividends, corporate access, and liquidation priority
• Spinoffs: How corporations distribute subsidiary shares, cost basis allocation, and tax treatment under Internal Revenue Code (IRC) Section 355
• Mergers and Consolidations: Exchange ratios, tax-free reorganizations, boot, and Securities and Exchange Commission (SEC) Rule 145
• Penny Stocks: The sub-$5 over-the-counter (OTC) market, SEC disclosure rules (15g series), and suitability statement requirements

Why This Matters

Common stock is the building block of equity analysis. Understanding share classifications, voting mechanics, and corporate actions like spinoffs and mergers is essential for making suitable recommendations and answering the roughly 18 equity-focused questions you'll see on exam day. These concepts also connect directly to later units on preferred stock, rights and warrants, and equity taxation.

Let's start with the different types of share classifications.