Difference between Common Stock and Preferred Stock – Financial Management

Difference between Common Stock and Preferred Stock
Raising Capital – Financial Management
BBA | BBA-BI | BBA-TT | BCIS
Management Notes

S.No. Common Stock Preferred Stock
1. Common stock is a security issued by a company that represents the ownership of the company. Preferred stock is a hybrid security issued by a company which has combined features of both debt and common stock.
2. Common Stockholders have residual claim on company’s assets and earnings ie; they are paid after paying to preferred stockholders. Preferred Stockholders have higher claim on company’s  assets and earnings.
3. Common Stockholders have the voting rights . ie; they  have right to cast vote in the election of Company’s BOD. Preferred Stockholders do not have the voting rights. ie; they do not have right to cast vote in the election of Company’s BOD.
4. Common stockholders never know the value of their dividends in advance. Preferred Stockholders receive dividends at a fixed rate.
5. Common stockholders do not have cumulative feature . ie; unpaid dividend in the past is not carried forward. Preferred Stockholders have comulative feature. ie; unpaid dividend in the past is carried forward.
6. Common Stockholders do not have convertible feature. ie; common stock cannot be converted into  specified no. of preferred stocks. Preferred Stockholders may have convertible feature. ie; preferred stock can be converted into specified no. of common stocks.
7. The face value of common stock shares are usually low than the preferred stock shares. The face value of preferred stock shares are  usually  higher than the common stock shares.
8. Common stockholders do not have the feature of call provision. ie; it cannot be redeemed before maturity. Preferred Stockholders have the feature of call provision . ie; it can be redeemed before maturity.

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