ContractsCounsel Logo
Home Blog Common Stock vs. Preferred Stock

Jump to Section

Common Stock vs. Preferred Stock: What Are the Differences?

There are a number of differences when it comes to common stock vs. preferred stock. Some of these include:

  • Voting Rights. Preferred stock typically does not offer voting rights.
  • Preferred Stock Dividends. Preferred stock offers a dividend yield of a set dollar amount of a dividend that is divided by the price of the stock.
  • No Dividends. Common stock often pays no dividends or pays variable dividends.
  • Valuation. Preferred stock value is inversely related to interest rates while common stock value is related to supply and demand.
  • Higher Claim. Preferred stock has a higher claim to assets and earnings in a liquidation.
  • Higher Dividends. Preferred stock usually receives higher dividends than common stocks.
  • Priority. Preferred stock has priority If dividend payments are missed and need to be repaid.
  • Callability. Preferred stock offers callability for the issuer.
  • Claim on Profit. Common stock comes with a claim on profits and voting rights.
  • Long Term Gains. Common stock tends to perform and provide the biggest potential for long-term gains compared to preferred or bonds.

These differences are the reason that some opt for preferred stock over common stock when given the option. However, not all companies issue preferred stock or allow their shareholders the option of choosing between the two types of stock.

Both types of stock differ from a convertible note, which is a type of debt where the purchaser can sell the stock either back to the company or to another individual/company at any time.

Here is an article about the differences between common stock and preferred stock.

What is Common Stock?

Common stock is a share of equity ownership in a particular corporation. This stock is the type that most people choose to invest in. When an individual refers to owning, buying, or selling stocks they are generally speaking about common stock.

This is the predominant way that stocks are issued. For most people it is the only form of stock that they will be eligible to purchase.

The purchase of common stocks, with a stockholders agreement or SAFE agreement includes a claim on profits as well as affording voting rights toward electing board members for the corporation. Through this election process common stockholders are granted some rights toward corporate decisions.

Those who hold common stock may or may not receive dividends on their shares. If they do receive dividends they are based on the discretion of the board of directors and are issued only after preferred stockholders have gotten their share of profits.

Here is an article about what common stock is.

What is Preferred Stock?

Preferred stock is a share in a company that then offers stockholders fixed dividends. These fixed dividends are one of the primary reasons that many people opt for this stock when given the choice in a stock purchase agreement. The dividends for this type of stock are issued before dividends for common stockholders.

This stock type is not available for all companies and is offered in smaller quantities. It offers priority over common stock in regards to payments from the company. The shareholders agreement will specify the exact rights and responsibilities. It will also include information about fiduciary duty.

Preferred stockholders do not have voting rights and have no ability or say in regards to policy decisions, board elections, or other company decisions in the way that common stockholders do. However, the advantages of dividends and priority are often enough for potential investors.

Here is an article about what preferred stock is.

Examples of Preferred Stock

There are many preferred stocks currently in the market, however some of these include:

  • Arlington Asset 7.00% Series B Cumulative Preferred Stock
  • Ashford Hospitality Trust Inc. 8.45% Series D Cumulative Preferred Stock
  • Hartford Financial Services ADRs of 6.000% Non-Cumulative Preferred Series G
  • Annaly Capital 6.95% Series F Fixed-to-Floating Rate Cumulative Preferred
  • Regions Financial ADRs of 5.700% Fixed-to-Floating Rate Non-Cumulative Preferred Series C
  • Skylight Health Group Inc. 9.25% Series A Cumulative Redeemable Perpetual Preferred
  • S. Bancorp ADRs of 5.5% Series K Non-Cumulative Preferred Stock
  • Wintrust Financial Fixed-to-Floating Rate Non-Cumulative Preferred Series D
  • Brookfield Property Partners L.P. 6.375% Class A Cumulative Preferred Units, Series 2
  • Pacific Gas & Electric Co. 5% 1 st Preferred Stock

These are only a small sampling of the many preferred stocks that are currently available. In total, there are 575 registered preferred stocks currently available on the U.S. stock market. These stocks offer differing percentage returns and liquidation values as with common stocks.

These preferred stocks also offer dividend payouts and priority in the event of a bankruptcy over what is available for common stockholders. In general, these types of stocks are considered less of a risk than common stock because shareholders receive payouts on a regular schedule and have a claim to any money that is available if the company goes entirely bankrupt.

Here is an article with some examples of preferred stock.

Meet some lawyers on our platform

Faryal A.

191 projects on CC
CC verified
View Profile

Danny J.

11 projects on CC
CC verified
View Profile

Samuel R.

67 projects on CC
CC verified
View Profile

Kelvin R.

24 projects on CC
CC verified
View Profile

How Stock Classes Work

Stock classes, or share classes, are specific designations that are given to securities for a company. These designations can be applied to common stocks, preferred stocks, and mutual fund units as well. Typically, they are applied as alphabetic markers.

Stocks may be designated as Class A or Class B, offering different rights and/or privileges along with the classification.

These stocks are classified based on the type of rights that are offered to the shareholder. As an example, a private company that is in the process of going public decides to offer two different classifications of stock. One offers increased voting rights over the other. This creates two different tiers or power structures.

Classes can be used for public companies (those that are already offering stocks) and for private companies (those that are about to go public for the first time). They can also be used for mutual fund shares and others.

The company gets to decide which type of stocks they are going to offer and whether they are going to offer different classifications in the process or only a single classification. Not all companies choose to have class A and B stocks, for example.

Here is an article about classes for stocks and some of the different options.

Is Preferred Stock Safer Than Common Stock?

The short answer is that preferred stock is often safer than common stock, offering a bit more security but there are still risks involved. A preferred stock offers higher priority, which is where the protection comes in. They are the first to get:

  • Dividend payments
  • Liquidation payouts
  • Value increases or decreases based on interest rates

These aspects of preferred stock make it safer than common stock because the payouts come earlier. Those who have common stock may not get dividend payments at all, or if they do those payments are variable, lower, and come after preferred stockholders have gotten theirs.

On the other hand, preferred stock is not as safe as bonds. With bonds, there is a stronger guarantee regarding payouts for dividends, repurchase, and liquidation. Bond holders will always get their money first but as a result they get lower interest.

Post a project on ContractsCounsel’s marketplace to get flat fee quotes from lawyers to draft and review contracts. All lawyers are vetted by our team and peer-reviewed by our customers for you to explore before hiring.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Need help with a Stock Purchase Agreement?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,053 reviews

Meet some of our Lawyers

Max M. on ContractsCounsel
View Max
4.9 (20)
Member Since:
July 12, 2021

Max M.

Business Attorney
Free Consultation
Baltimore, Maryland
17 Yrs Experience
Licensed in MD
Georgetown University Law Center

Results oriented business attorney focusing on the health care sector. Formerly worked in Biglaw doing large multi-million dollar mergers and acquisitions, financing, and outside corporate counsel. I brought my skillset to the small firm market, provide the highest level of professionalism and sophistication to smaller and startup companies.

Ralph S. on ContractsCounsel
View Ralph
5.0 (4)
Member Since:
October 31, 2021

Ralph S.

Free Consultation
Gainesville FL
13 Yrs Experience
Licensed in DC, FL, MA
University of Florida Levin College of Law

Ralph graduated from University of Florida with his JD as well as an LLM in Comparative Law. He has a Master's in Law from Warsaw University , Poland (summa cum laude) and holds a diploma in English and European Law from Cambridge Board of Continuous Education. Ralph concentrates on business entity formation, both for profit and non profit and was trained in legal drafting. In his practice he primarily assists small to medium sized startups and writes tailor made contracts as he runs one of Florida disability non profits at the same time. T l Licensed. in Florida Massachusetts and Washington DC this attorney speaks Polish.

Anand A. on ContractsCounsel
View Anand
5.0 (39)
Member Since:
July 17, 2022

Anand A.

Free Consultation
Philadelphia, PA
10 Yrs Experience
Licensed in NJ, PA
Rutgers University School of Law

Anand is an entrepreneur and attorney with a wide-ranging background. In his legal capacity, Anand has represented parties in (i) commercial finance, (ii) corporate, and (iii) real estate matters throughout the country, including New Jersey, Pennsylvania, Delaware, Arizona, and Georgia. He is well-versed in business formation and management, reviewing and negotiating contracts, advising clients on financing strategy, and various other arenas in which individuals and businesses commonly find themselves. As an entrepreneur, Anand is involved in the hospitality industry and commercial real estate. His approach to the legal practice is to treat clients fairly and provide the highest quality representation possible. Anand received his law degree from Rutgers University School of Law in 2013 and his Bachelor of Business Administration from Pace University, Lubin School of Business in 2007.

Seth S. on ContractsCounsel
View Seth
5.0 (2)
Member Since:
October 1, 2020

Seth S.

Free Consultation
New York
10 Yrs Experience
Licensed in NY
Touro Law School

I am an attorney admitted in NY, with over 6 years of experience drafting, reviewing and negotiating a wide array of contracts and agreements. I have experience in Sports and Entertainment, Real Estate, Healthcare, Estate Planning and with Startup Companies. I am confident I can assist you with all of your legal needs.

Rishma E. on ContractsCounsel
View Rishma
5.0 (1)
Member Since:
October 1, 2020

Rishma E.

Free Consultation
Miramar, FL
10 Yrs Experience
Licensed in FL
St. Thomas University School of Law

Rishma D. Eckert, Esq. is a business law attorney who primarily represents domestic and international companies and entrepreneurs. A native of both Belize and Guyana, she remains engaged with the Caribbean community in South Florida: as a Board Member and General Counsel for the Belize American Chamber of Commerce of Florida, and Member of the Guyanese American Chamber of Commerce. She holds a Bachelor of Laws degree (LL.B.) from the University of Guyana in South America, a Master’s degree in International and Comparative Law (LL.M.) from Stetson University College of Law in Gulfport, Florida, and earned a Juris Doctor degree (J.D.) from St. Thomas University School of Law in Miami, Florida. Licensed to practice in the State of Florida and the Federal Court in the Southern District of Florida, Mrs. Eckert focuses her passion and practice on domestic and international corporate structuring and incorporation, corporate governance, contract negotiation and drafting, and trademark and copyright registrations.

Kiel G. on ContractsCounsel
View Kiel
5.0 (1)
Member Since:
October 2, 2020

Kiel G.

Free Consultation
Hollywood, FL
7 Yrs Experience
Licensed in FL
Florida State University

Founder and Managing partner of Emerald Law, PLLC, a business law firm specializing in contract drafting and corporate transactions. Kiel worked as in house counsel for a variety of companies before launching his own firm, and most recently served as the Chief Legal Officer for an international private equity firm.

Mark A. on ContractsCounsel
View Mark
Member Since:
October 2, 2020

Mark A.

Free Consultation
Jacksonville, FL
20 Yrs Experience
Licensed in FL
University of Florida

Mark A. Addington focuses his practice primarily on employment litigation, including contractual disputes, restrictive covenants (such as non-competition, non-solicitation, or confidential information restrictions), defense of wage and hour, harassment, retaliatory discharge, disability, age, religion, race, and sex discrimination.

Find the best lawyer for your project

Browse Lawyers Now

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Need help with a Stock Purchase Agreement?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,053 reviews
See All Business Lawyers

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

Need help with a Stock Purchase Agreement?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,053 reviews

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city