Question

When a corporation has both common stock and preferred stock outstanding, what does it mean?

1) The corporation has issued both common stock and preferred stock to shareholders.
2) The corporation has issued only common stock to shareholders.
3) The corporation has issued only preferred stock to shareholders.
4) The corporation has not issued any stock to shareholders.

Answer 1

When a corporation has both common stock and preferred stock outstanding, it means that the corporation has issued both types of stock to shareholders. Common stock represents ownership in the company, while preferred stock gives shareholders priority in dividends and liquidation.

Step-by-step explanation:

When a corporation has both common stock and preferred stock outstanding, it means that the corporation has issued both types of stock to shareholders. Common stock and preferred stock are different classes of stock that a company can offer to raise capital.

Common stock represents ownership in the company and typically grants voting rights to shareholders. Preferred stock, on the other hand, usually does not offer voting rights but gives shareholders priority when it comes to dividend payments and liquidation proceeds.

For example, a corporation may issue common stock to regular shareholders and preferred stock to a specific group of investors who want a fixed dividend payment and prefer to have priority in receiving their investment back in case of liquidation.