Investing in owning a company is one of the best financial decisions that you can ever make in your lifetime. However, knowing which kind of shares you would like to own in a lucrative business may be tricky at times. Here is some information about how you can differentiate between stocks.
Common stock is defined as owning a stake in a company through security. Individuals that own common stock have the privilege of voting on corporate policies and electing members of the board of directors. These kinds of stocks are popular and they allow the holder to own a piece of the establishment without possessing the whole of it. The common stock is recorded in a company’s balance sheet under the equity segment of the stockholder.
Preferred stock is defined as owning shares or stocks in a company with limited rights. Also known as preferred shares, the shareholder gets limited rights in the company. The owner of preferred stock has both debt and equity rights.
There are various differences between common stock vs preferred stock. Here are others that can assist you in differentiating between the two:
1. Assets Claim:
In the unfortunate event that a company is liquidated or even when a bankruptcy is filed, the owners of preferred shares will receive any cash that is left over. In retrospect, the owners of common shares will obtain the remaining cash. Furthermore, owners of common shares don’t receive anything when companies are liquidated because their shares are deemed worthless.
Common shares owners usually collect their dividends after preferred shares holders acquire theirs. As opposed to common shares holders, preferred shareholders get fixed dividends. However, this means that preferred shareholders lose more when the company shares gain higher profits. Moreover, if the company has overdue debts or unpaid dues of preferred shareholders, it will be distributed to them first.
3. Voting rights:
Common shareholders have more say as to how the company is managed and run. Furthermore, they also have voting rights and they decide who will sit in the company’s board of directors. This means that they have more responsibility when it comes to deciding who will make the company more profitable, but they don’t get benefits when their decisions fail. However, preferred shareholders don’t possess any voting rights in the company and they can never determine who sits in the board of directors.
4. Ticker Symbol:
You can easily differentiate between common stock vs preferred stock by checking the ticker symbol. Preferred stock normally has a ticker symbol of P at the end of it. However, various finance lists like Yahoo and Google Finance have different ways of defining diverse stocks.