What is Callable Common Stock
Callable common stock is a share of ownership in a business, redeemable by the issuer, at a predetermined price or premium to the current market price. As with a callable bond, owners of a callable stock are required to sell their shares back to the issuer upon demand. Common stock is not usually callable, unlike preferred shares, which have unique bond-like features, and are more likely, at the issuer's discretion, to be callable.
BREAKING DOWN Callable Common Stock
Common stock must be specifically designated as callable at the time of sale, if the corporation wants to have the option to redeem it. Otherwise, common stock will remain on the market indefinitely, unless the company chooses to buy back its shares on the open market, has its shares delisted or goes bankrupt.
A typical business strategy involving callable common stock is when a parent company issues stock to fund a subsidiary company. By issuing callable stock, the parent company reserves the right to buy back the shares of the subsidiary company, should it become strategically beneficial.