Common Stock vs Preferred Stock

Stocks are issued when the company borrows money from the public. In the financial market there are two types of stocks offered for sale: common stocks and preferred stocks. Investors should learn some basic knowledge about what common stocks is, what preferred stocks is, and the difference between these two types of stocks.

Common stocks are the most popular form in the stock market. It represents the ownership and the stockholders are deemed as the members of the company. Here we will look at some differences between common stocks and preferred stocks:

Voting Rights:
Common stockholders have voting rights. They have the right to vote in the stockholders’ meeting. Each stock is entitled to the right of one vote in the meeting. Hence they can exercise control by electing qualified board members to oversee the management of the company.

In contrast to common stocks, preferred stockholders do not have the right to vote at the meeting.

Dividend Payments:

Both common and preferred stockholders are entitled to a share of the year end profits in the form of dividend. Preferred stockholders are given a fixed rate of percentage per annum in the form of dividends and are given priority to receive dividend before the ordinary dividend, while the amount of dividend payments for common stockholders are not fixed and are determined by the directors of the company.

Preferred stocks can be further classified into cumulative and non-cumulative.

For cumulative preferred stocks, any dividends that are not settled from previous year will be carried forward to the following period. On the contrary non-cumulative preferred stocks do not have such advantage. Any dividends that are not paid previously cannot be carried forward.

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