Common Equity

Common equity is ordinary ownership in a company. It carries voting rights and full participation in any increase in value, but ranks behind every other claim — debt first, then preferred equity — when proceeds are distributed.

It is the instrument founders and employees hold, and the one that captures the greatest upside precisely because it absorbs the greatest downside.

Founders receive common shares at formation, usually subject to vesting. Employees receive options over common shares. Outside investors rarely buy common directly at early stages, though it is bought and sold in secondary transactions and is the class listed in a public offering.

• Vesting schedule and cliff
• Option pool — shares reserved for employees, usually created before a round and diluting existing holders
• Voting rights — typically one vote per share
• Right of first refusal and transfer restrictions
• Drag-along and tag-along provisions

• Last in line on any distribution of proceeds
• Value can be wiped out entirely by a large preference stack
• Illiquid in a private company, often for many years
• Option pool expansions dilute existing common holders specifically