The main difference between preferred stock & common stock is that preferred stock gives no voting rights to shareholders while common stock does. Preferred shareholders have priority over a company's income, meaning they are paid dividends before common shareholders.There are some difference between common stock & preferred stock are given below:
1.Company ownership:
Holders of both common stock and preferred stock own a stake in the company.
2. Voting rights:
Even though both common shareholders and preferred shareholders own a part of the company, only the common shareholders have voting rights. Preferred shareholders do not have voting rights. For example, if there were a vote on the new board of directors, common shareholders would have a say, whereas preferred shareholders would not be able to vote.
3. Dividends:
Although both shareholders can receive dividends, the payment of dividends differs in nature. For common shares, the dividends are variable and are paid out depending on how profitable the company is.
4. Claim to earnings:
When a company reports earnings, there is an order where investors are paid out. Usually, bondholders are paid out first, and common shareholders are paid out last. Because preferred shares are a combination of both bonds and common shares, preferred shareholders are paid out after the bond shareholders but before the common stockholders.
In the event that a company goes bankrupt, the preferred shareholders need to be paid first before common stockholders get anything.
5. Conversion:
Preferred shares can also be converted to a fixed number of common shares, but common shares cannot be converted to preferred shares.
6. Returns:
Ultimately, both common and preferred shares are paid out of a company’s earnings. The returns of a common share are most commonly based on the increase or decrease of the share price, including an optional dividend paid out. In contrast, the returns on a preferred share are mainly based on its mandatory dividends.