What are common and preferred stock?
Common Stock is prescribed by law: each share of stock carries one vote, and common shareholders are entitled to their pro-rata share of dividends (if a dividend is declared). One popular method of preserving voting control for the insiders when raising investment capital is the use of Preferred Stock, in addition to Common Stock. Under most state laws, preferred stock has no set prescription or formula. Its terms are open and limited only by what the dealmakers come up with. It can be structured to give the investors preferential financial assurances without giving them voting rights. Preferred stockholders may be preferred as to dividends, liquidation rights (if the company should go under), and other considerations. It may be voting stock or non-voting stock. The company can have the right to buy-out preferred stockholders at a given price, or at a given date in the future for a formula price. This is one of the great advantages of Delaware Corporation Law – it’s flexible. Corporate
