Common Stock & Preferred Stock

Common stock and preferred stock are forms of securities that represent ownership in a company. Common stock stock holders typically may vote in company affairs and may or may not receive dividends. Common stock is the lowest priority security in a liquidation event. This means that during a liquidation event (sale of the company, bankruptcy, etc.), all of the bond holders, debt holders, and preferred stock holders will receive payment before common stock holders get any money.

Preferred stock is a security similar to common that often has a preference over common stock (or other preferred stock) in a liquidation event. There are a number of different liquidation preferences preferred stock can have, though all are intended to provide added value to preferred stock and lessen the risk for investors. Preferred stock will also often have dividends paid out.

Related Articles