Question

Companies frequently issue both preferred stock and common stock. What are the major differences in the rights of stockholders between these two classes of stock

Answer 1

Preference Shares

• They get a stated amount of dividend every period dependent on the income of the company
• This dividend is paid to them before dividends are paid to Common shareholders
• They cannot vote in the company for either directors or general matters
• They get preference over common shareholders in cases of liquidation

Common Shares

• Common shares are equity interests in the company which means that they can vote on general and major issues matters as well as to elect directors.
• They get dividends based on company performance and after the preference shareholders
• They can transfer ownership of their stock to other individuals.