What is the difference between common and preferred stocks ?

prefferd stock do not have certain rights like voting right, dividend, they are treatd more like debt holder.

 

plz vote!

1. Risk is the most important factors to describe the differences.
2. There are no risk with preferred stocks and it earned fixed return
3. But in the same time common stock are allocated all the risk and it's holders have many rights like dividends, voting, managing the co...

common stock holder is an owner and has the right of voting, taking dividends, sharing in loss while preferred stock holder is a debtor and takes fixed return, hasen't the right to manage  and don't share in loss

From the claiming point of view, the preferred stock holders has first right over common stock holders at the time of insolvancy  but not over bonds holder.

Preferred Stock holders gets profit (fixed rate) from the company while common stock holders get dividend.If the company is in loss, let suppose for three years), then company will pay them (preferred stock holders), accomulated interest rate for three years.(it is applicable if this clause is the part of terms and conditions or contract).

 

 

Common stock is the most basic type of stock.

 

Preferred stock is usually has certain preferred characteristics, such as special rights to dividends ahead of common stock holders or special status to receive payments if the company is ever liquidated before holders of common stock receive any payments.

 

To add to Mr. Iqbal Abubeker answers preferred shares provides the following benefits when they are stated on the document.1. Preferred shares can be issued as cumulative or non cumulative. If they are cumulative any unpaid dividends on current fiscal year transferred to the next fiscal year. Holders of such document do not have a treat to lose their money whether its declared or not in current fiscal year.2. Some shares can also be issued with a conversion right. They can be converted to a specified number of common shares when a particular conditions or before a specific date . Holders have also the right to transfer to other investors if it is specified on the document. When such rights attached to the preferred shares, it highly attract institutional investors.

Preference Stocks, by all means of substane over form, are a sort of debt instruments. They do not get voting rights.For ordinary shares, dividend can be delayed.For preference shares, the dividend accrues year on year.Preference shares get a Fixed Dividend, so it resembles an interest Payment. And Preference Dividend is ahead in line of ordinary Dividend.They also rank higher in the list ahead of ordinary Shareholders in the case of a Liquidation.

Common stock carries voting right,receives dividend from distributable profits but preferred stock does not have such voting rights and doesn't receive dividends.Instead of dividends,they receive an fixed interest return quoted on preferred stock regardless of entity's cash flow position. Under liquidation,preferred stock are prioritised to redeem before common stock.

Hmmmm............ There are several differences in common and preffered stocks. As the finance and accounting are moving forward, there are several new types of preffered stocks being created and designed to attract more capital.

 

The basic factor, which distinguishes, Common Stock over Preffered Stocks is payments to stock holders in case of liquidation. The common stock holders are always the last to get any residual value in case of liquidation.

 

IMO risk factor, is not as such important thing to distinguish among common and preferred stock, since both share risk, according to their own risk appetite. There may be cases, where prefferred stock may have a voting right, and in cases they may ask for special voting rights too. Though this is less common.

 

Common Stock

Most shares of stock are called “common shares”. If you own a share of common stock, then you are a partial owner of the company. You are also entitled to certain voting rights regarding company matters.

Typically, common stock shareholders receive one vote per share to elect the company’s board of directors (although the number of votes is not always directly proportional to the number of shares owned). The board of directors is the group of individuals that represents the owners of the corporation and oversees major decisions for the company. Common stock shareholders also receive voting rights regarding other company matters such as stock splits and company objectives.

In addition to voting rights, common shareholders sometimes enjoy what are called “preemptive rights.” Preemptive rights allow common shareholders to maintain their proportional ownership in the company in the event that the company issues another offering of stock. This means that common shareholders with preemptive rights have the right but not the obligation to purchase as many new shares of the stock as it would take to maintain their proportional ownership in the company.

Although common stock entitles its holders to a number of different rights and privileges, it does have one major drawback: common stock shareholders are the last in line to receive the company’s assets. This means that common stock shareholders receive dividend payments only after all preferred shareholders have received their dividend payments . It also means that if the company goes bankrupt, the common stock shareholders receive whatever assets are left over only after all creditors, bondholders, and preferred shareholders have been paid in full.

Preferred Stock

 

The other fundamental category of stock is preferred stock. Like common stock, preferred stock represents partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders. Also unlike common stock, preferred stock pays a fixed dividend that does not fluctuate, although the company does not have to pay this dividend if it lacks the financial ability to do so. The main benefit to owning preferred stock is that you have a greater claim on the company’s assets than common stockholders. Preferred shareholders always receive their dividends first and, in the event the company goes bankrupt, preferred shareholders are paid off before common stockholders.

following are the differences between prefernace stock and common stock

1. common stockholders have voting right where as prefect stockholder have not voting right.

2. common stock is more risky than preferd stock.

3 Rate of retunrn on prefect stock is fixed where as rate of retun on common stock may varies.

4 give first priority to preferd stock at liquidation time.