corporate-finance
Common equity is the residual ownership of a company: last in line after debt and preferred claims, with voting rights that vary by class, and unlimited upside if anything remains.
Common equity (ordinary shares) is what founders, employees (via options that settle into common) and some investors hold. In a winding-up or a sale waterfall it is paid after creditors and after preferred shares. In a good outcome it owns everything that is left — which is why equity value in a simple capital structure is the value of common plus prefs treated as equity.
IAS 32 treats plain ordinary shares as equity. Dual-class commons with special votes are still common equity economically; they are a governance design.
Enterprise value minus net debt is equity value of the firm. Splitting that among common and preferred is a waterfall, not a fully diluted percentage. Employee options further dilute common.
Equity value €50m. Preferred liquidation preference €12m, non-participating. If the preferred convert, they own 30%. On a €50m exit they convert; common (including option pool) shares 70%. On a €10m exit the preferred take €10m and common takes nothing. Same “70/30 cap table,” different worlds.
Owners care about voting and the waterfall. Employees care whether their options are on common and whether a preference stack makes them worthless on a “successful” small sale.
Equating percent ownership with percent of proceeds. Forgetting unvested options in fully diluted common. Assuming common always votes a sale through when drag rights sit with preferred.
Common is not a fixed-income instrument. It also does not protect you from dilution in the next round.
Common equity only means something when the rest of the stack is visible. Structure the cap table the way you structure financials — as an object that investor matching and a future SPA can read.