Common Stock vs. Preferred Stock

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 2,748 reviews

Jump to Section

Need help with a Stock Purchase Agreement?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

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 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 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.

Either type of stock will offer a convertible note to the purchaser. This means 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

Christopher M.

10 projects on CC
View Profile

Brad H.

8 projects on CC
View Profile

Max M.

105 projects on CC
View Profile

Tabetha H.

12 projects on CC
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 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.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Keidi C. on ContractsCounsel
View Keidi
Member Since:
August 25, 2021

Keidi C.

Principal Attorney
Free Consultation
Get Free Proposal
Boston, MA
24 Yrs Experience
Licensed in MA, NY
New England Law | Boston

Keidi S. Carrington brings a wealth of legal knowledge and business experience in the financial services area with a particular focus on investment management. She is a former securities examiner at the United States Securities & Exchange Commission (SEC) and Associate Counsel at State Street Bank & Trust and has consulted for various investment houses and private investment entities. Her work has included developing a mutual fund that invested in equity securities of listed real estate investment trusts (REITs) and other listed real estate companies; establishing private equity and hedge funds that help clients raise capital by preparing offering materials, negotiating with prospective investors, preparing partnership and LLC agreements and advising on and documenting management arrangements; advising on the establishment of Initial Coin Offerings (ICOs/Token Offerings) and counseling SEC registered and state investment advisers regarding organizational structure and compliance. Ms. Carrington is a graduate of Johns Hopkins University with a B.A. in International Relations. She earned her Juris Doctorate from New England Law | Boston and her LL.M. in Banking and Financial Law from Boston University School of Law. She is admitted to practice in Massachusetts and New York. Currently, her practice focuses on assisting start ups, small and mid size businesses with their legal needs in the areas of corporate and securities law.

Jim S. on ContractsCounsel
View Jim
Member Since:
August 13, 2021

Jim S.

Attorney
Free Consultation
Get Free Proposal
Florida
36 Yrs Experience
Licensed in NY
Notre Dame

Jim Slattery most recently served as General Counsel at Regional News Network, a large owner of broadcast television stations. Jim is an experienced attorney with broad-based expertise. He is a seasoned negotiator who has been involved in negotiations as complex as the Olympic Games. Jim spent 18 years as Vice President for Business and Legal Affairs at NBCUniversal. Previously, Jim worked in the media industry in various roles at All American Television. Jim’s success can be attributed to his ability to properly analyze data, manage projects, lead teams, develop creative solutions for complex problems, focus on strategically optimizing assets, manage/allocate risk and collaborate with divergent constituent groups to achieve objectives. Jim received a J.D. and a B.B.A. from the University of Notre Dame.

Namrita N. on ContractsCounsel
View Namrita
Member Since:
August 18, 2021

Namrita N.

Attorney at Law
Free Consultation
Get Free Proposal
Plano, TX
2 Yrs Experience
Licensed in MN, TX
Mitchell Hamline School of Law

Retired Dentist transitioned to Law, with a special interest in Commercial Real Estate, Startup businesses, Asset Purchase Agreements, and Employment Contracts. I love to help dentists and physicians with legal issues pertaining to licensing, credentialing, employment, and general business-legal questions.

Jonathan H. on ContractsCounsel
View Jonathan
Member Since:
September 18, 2021

Jonathan H.

Owner
Free Consultation
Get Free Proposal
New York
10 Yrs Experience
Licensed in NY
Pace Law School

I’m an attorney focusing my practice on concierge corporate and intellectual property law for startups and high-growth companies. I also serve as outside General Counsel to several businesses in various sectors. Since founding my practice I've worked with hundreds of clients across a variety of industries. My experience as a former General Counsel of a premier edtech company gives me unique insight into the challenges my clients face and how to resolve them efficiently and cost-effectively.

George F. on ContractsCounsel
View George
Member Since:
August 18, 2021

George F.

Attorney
Free Consultation
Get Free Proposal
Astoria, NY
21 Yrs Experience
Licensed in NY
Fordham University School of Law

The Law Office of George K. Fuiaxis, from the very beginning in 2002, has built a reputation with its clients as an unmatched, diligent, hands on law practice that is always on duty to find the best course of action for its clients. With a supreme pledge of exceptional service to its clients in the areas of Real Estate (Commercial & Residential), Loan Modifications, Intellectual Property, Corporate Law & Business Transactions, Wills, Trusts & Estates, the Law Office of George K. Fuiaxis creates solutions for the many faceted problems faced by its clients. The office represents several various clients, including well known lending institutions, foreign and domestic corporations, sellers and buyers of residential and commercial real estate, residential and commercial landlords and tenants, well known restaurant and business owners, automobile dealerships, airline companies, well known fashion, sports and entertainment industry individuals and corporations, information technology (IT) startups and well known IT companies.

Chris J. on ContractsCounsel
View Chris
Member Since:
August 22, 2021

Chris J.

Outside Counsel
Free Consultation
Get Free Proposal
Irvine, CA
27 Yrs Experience
Licensed in CA
Loyola Law School, Los Angeles

I'm a business law generalist with over 24 years of experience, including as in-house General Counsel, as outside counsel through my own firm and as an attorney in an Am Law 100 law firm. My employers and clients uniformly appreciate my ability to (i) negotiate and close transactions quickly and effectively, and (ii) to make the complex simple. Among other things, I can efficiently assist you on entity formation, governance, and structure; HR issues; mergers and acquisitions; and the negotiation and drafting of all types of commercial contracts. I'm the proud recipient of multiple Martindale-Hubbell Client Distinction Awards given only to the top 5% of attorneys for quality of service.

Gregory W. on ContractsCounsel
View Gregory
Member Since:
August 23, 2021

Gregory W.

Business Attorney
Free Consultation
Get Free Proposal
Los Angeles
15 Yrs Experience
Licensed in CA
University of West Los Angeles

Strategic thinking business minded Outside General Counsel here to help you with your company. I have been able to help guide business owners from startup through series A, B, & C funding and ultimately IPO's. Regardless of your plans I am here to help you succeed as you grow your business.

Michael O. on ContractsCounsel
View Michael
Member Since:
February 14, 2022

Michael O.

Managing Attorney
Free Consultation
Get Free Proposal
Los Angeles
15 Yrs Experience
Licensed in CA, NY
University of Southern California

A corporate and commercial attorney with experience in transactional legal services including corporate and finance transactions, mergers and acquisitions, real estate, commercial contracts, bankruptcy, restructuring, international business transactions and general counsel services. Additional background skills and experience include investment banking, financial analysis, and commercial litigation. Sectors covered include technology, media, franchises, and business services providers, from start-ups to medium and large enterprises.

Daliah S. on ContractsCounsel
View Daliah
Member Since:
September 1, 2021

Daliah S.

Principal Attorney
Free Consultation
Get Free Proposal
Chicago, IL
18 Yrs Experience
Licensed in IL
University of Illinois College of Law

Daliah Saper operates a cutting-edge internet and social media law practice that regularly leads local and national media outlets to solicit her commentary on emerging internet law issues involving cyberbullying, sexting, catfishing, revenge porn, anonymous online defamation, domain name and user-name squatting, privacy, and the latest business decisions made by social media platforms such as Facebook, Twitter and YouTube. As a litigator Daliah represents companies bringing or defending business and intellectual property disputes. (She has argued cases in a number of jurisdictions including taking a case all the way to the Illinois Supreme Court.) As a transactional lawyer she helps clients choose the right business entity, drafts contracts and licensing agreements, advises on sweepstakes and contest rules, and ensures website terms of use and privacy policies are compliant, and provides comprehensive trademark and copyright counseling. Since founding Saper Law Offices in 2005, Daliah has been named a 40 Under 40 by Law Bulletin Publishing Co., a top Media & Advertising attorney by Super Lawyers Magazine 14 years in a row, and has been repeatedly recognized as a leading media and entertainment lawyer by Chambers and Partners. For the past eleven years, she also has taught entertainment and social media law at Loyola University Chicago School of Law.

Alex M. on ContractsCounsel
View Alex
Member Since:
August 26, 2021

Alex M.

Attorney
Free Consultation
Get Free Proposal
Los Angeles, California
11 Yrs Experience
Licensed in CA
Southwestern Law School

Mr. Mehdipour attended the University of California San Diego where he received his degree in political science. After graduating from UCSD, Mr. Mehdipour attended Southwestern University School of Law where he received his JD. Upon passing the bar, Mr. Mehdipour gained invaluable experience both in a law firm and business setting. Mr. Mehdipour uses his prior business and legal experiences to negotiate the most advantageous results for his clients.

Alen A. on ContractsCounsel
View Alen
Member Since:
August 26, 2021

Alen A.

Attorney
Free Consultation
Get Free Proposal
Los Angeles, CA
15 Yrs Experience
Licensed in CA
University of West Los Angeles

Alen Aydinian is a versatile attorney with over a decade of experience working with business owners and real estate professionals. Client engagement is central to a successful attorney/client relationship. Alen personally manages all client relationships so that his clients can see how their interests are being served at every stage of the process.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

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

Request a call