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    What Makes Common Stock, Common?

    Suppose that the articles of incorporation provide that a corporation will have two classes of shares, with one class entitled to 90% of all dividends declared and assets upon liquidation and the other class to the remaining 10%.  Clearly, an investor would prefer the former to the latter, but would the former be considered "preferred" and the latter "common" shares?

    Under California's General Corporation Law, the answer is "no".  Section 176 adopts an apophatic approach to defining "preferred shares": they are shares that are "other than common shares".  Thus, to know whether shares are "preferred shares", one must first determine whether they are "common shares".  Section 159 defines "common shares" as "shares which have no preference over any other shares with respect to distribution of assets on liquidation or with respect to payment of dividends". 

    More does not mean before

    In my example, one class is clearly entitled to more, but that is not the same as a right to be paid in advance of the other class.  Thus, the shares of each class are "common shares" because neither has a preference over any other shares with respect to distributions of assets.