Common stock is a security issued by a company that represents the ownership of the company.Preferred stock is hybrid security issued by a company that has combined features of both debt and common stock.
Common Stock Vs Preferred Stock
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 hybrid security issued by a company that has combined features of both debt and common stock. |
2. | Common Stockholders have a residual claim on the company’s assets and earnings ie; they are paid after paying to preferred stockholders. | Preferred Stockholders have a higher claim on the company’s assets and earnings. |
3. | Common Stockholders have voting rights. ie; they have the right to cast vote in the election of Company’s BOD. | Preferred Stockholders do not have voting rights. ie; they do not have the 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 cumulative feature. ie; unpaid dividend in the past is carried forward. |
6. | Common Stockholders do not have convertible features. ie; common stock cannot be converted into specified no. of preferred stocks. | Preferred Stockholders may have convertible features. ie; preferred stock can be converted into specified no. of common stocks. |
7. | The face value of common stock shares is usually low than the preferred stock shares. | The face value of preferred stock shares is usually higher than the common stock shares. |
8. | Common stockholders do not have the feature of a call provision. ie; it cannot be redeemed before maturity. | Preferred Stockholders have the feature of a call provision. ie; it can be redeemed before maturity. |
Common Stock Multiple Choice Questions (MCQs)
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You have really tried to pinpoint the key difference between common stock and preferred stock. But my suggestion is that in point 5, 6 & 8 you have to write only stock instead of stockholders since that’s that feature or nature of stocks not the stockholders.
-itheamc.blogspot.com
-onlinemgmtnotes.com
Thank u for the suggestions Amit.