Final answer:
The preference between common and preferred shares depends on the investor's goals and risk tolerance. Common shares offer growth potential and voting rights, while preferred shares provide fixed dividends and greater security in liquidation. Shareholders elect a board of directors who hire executives, ensuring management aligns with owner interests.
Step-by-step explanation:
Deciding whether to own common shares or preferred shares in a company depends on individual investment goals and risk preferences. Common shares offer potential for capital appreciation through stock price increases and voting rights that allow shareholders to influence corporate governance by electing a board of directors. Preferred shares, on the other hand, generally offer fixed dividends and have priority over common shares in the event of liquidation, but do not usually provide voting rights.
If I were to choose, owning common shares could be more appealing for long-term growth and the opportunity to have a say in the company's management decisions through voting. Nevertheless, if I am seeking less risk and more stable returns, preferred shares might be the better choice. The decision to own common or preferred shares should align with the investor's financial strategy, risk tolerance, and the need for stable income or growth potential.
In a public company, shareholders elect a board of directors who are responsible for hiring top executives to manage the company. This is crucial because it ensures that the direction of the company is guided by individuals who are accountable to the shareholders. Shareholders' influence is proportional to the amount of stock they own, thus integrating ownership with managerial oversight.