What is Ordinary Stock?

Ordinary stock is an equity instrument that is subordinate to all other types of equity. It represents a fraction of the ownership of the issuing entity. The holder of ordinary stock participates in an entity's profits only after all other types of equity shares have participated. The holder of ordinary stock may receive dividends declared by the issuing company's board of directors, and is also entitled to vote for company directors and other matters, as specified in the articles of incorporation and bylaws of the business.

There may be more than one class of ordinary stock, typically involving differences in voting rights. For example, the founder of a business wants to retain control over the enterprise, and so sells non-voting ordinary stock to investors, while retaining all voting ordinary stock for himself. This use of multiple stock classes allows the founder to maintain control over the business even while only owning a minority of the total number of shares outstanding.

What is Potential Ordinary Stock?

Potential ordinary stock is a financial instrument or other contract that may give its holder the right to acquire ordinary stock; examples of these instruments are options, warrants, and convertible preference stock. Potential ordinary stock is included in the calculation of diluted earnings per share, which is reported by publicly-held companies.