Describe the basic rights of common stockholders. What are the key differences between common and preferred stock?

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readerofbooks | College Teacher | (Level 2) Educator Emeritus

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Let me start with the second question and then move to the first. A preferred stock differs from a common stock in a few ways. People who hold a preferred stock basically have more rights over a company than a person who holds common stock. For example, when the company is doing well, preferred stockholders get paid out first in the form of dividends. In addition, the dividend payouts to preferred stockholder is usually greater. However, when this is most important is when a company files for bankruptcy. Preferred stock holders get paid out first when the assets of a company are sold.

As to what the basic rights of stockholders are, I think we can say two points. First, stockholders have a right to know the truth about the companies financial situation. The accounting practices need to be transparent and the numbers must not mislead in any way. Second, stockholder need to know where the company is headed towards and more information about these things is better than less. We could say one more thing. Stockholders have a right to know anything else that might harm the company.

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