According to accountancy professionals, the ‘common stocks’ represent an ownership in the entity. It is worth mentioning that individuals holding common stocks are supposed to exercise control by finalizing the board of directors and picking up the right corporate policies for their company.
Furthermore, common stockholders are not valued to the fullest and wander at the bottom of the ownership’s hierarchy. However, in an event leading to ‘liquidation’ common shareholders are liable to access the company’s total assets after bondholders and other debts have been paid off.
In the ‘United Kingdom’, the same stocks are termed as ‘ordinary shares’ following their wonted nature in the business. It is worth mentioning that companies that are bankrupt in the markets, their common stockholders are not liable to get their funds until ‘creditors’ and shareholders from other classes receive their chunk of money from the assets.
Therefore, common stocks are proven to be riskier than the preferred shares at all levels, because their owners stand last in the queue at the time of settlement from the companies.
Difference Between Preferred and Common Stocks:
- Preferred stockholders are given more exposure to the company’s assets and overall earnings than the common stockholders for obvious reasons.
- The dividends of the preferred stockholders are usually higher in prices when they’re compared with the dividends coming in from the common stockholders, which isn’t surprising to hear at all.
Therefore, common stocks are not considered imperative in the business. However, this concept entered the business market decades ago, for which, it is used and studied in big and small enterprises to keep up with the requirements.