Preferred And Common Stock, Share And Debenture | HSC Finance

Jubair Pavel

3 years ago

Preferred And Common Stock, Share And Debenture class is for the HSC candidates or for the students of classes 11 and 12. This class is a part of HSC (11-12) [ এইচএসসি (১১-১২) ], Finance and Banking 1st paper. You can find it in the Finance 1st Paper, chapter 6, the topic name is “disadvantages of common stock, a difference of preferred and common stock, and the difference between share and debenture”. This class will help you in your upcoming HSC examination.

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Preferred And Common Stock, Share And Debenture

Common Stock Explained

Common stock is primarily a form of ownership in a corporation, representing a claim on part of the company’s assets and earnings. If you’re a shareholder, this makes “part-owner,” but this doesn’t mean you own the company’s physical assets like chairs or computers; those are owned by the corporation itself, a distinct legal entity. Instead, as a shareholder, you own a residual claim to the company’s profits and assets, which means you are entitled to what’s left after all other obligations are met.

Traded on exchanges, common stock can be bought and sold by investors or traders, and common stockholders are entitled to dividends when the company’s board of directors declares them. Typically, they are paid out of a company’s earnings, and the decision to distribute them is made by the board taking into account factors like company performance, future capital requirements, and broader financial goals.

The first-ever common stock was issued in 1602 by the Dutch East India Company and traded on the Amsterdam Stock Exchange. Over the following four centuries years, stock markets have been created worldwide, with major exchanges like the London Stock Exchange and the Tokyo Stock Exchange listing tens of thousands of companies.

Larger U.S.-based stocks are traded on a public exchange, such as the New York Stock Exchange (NYSE) or Nasdaq. As of mid-2023, the NYSE had some 2300 listings of its own, with another 5700 listed from the other U.S. stock markets, making the NYSE the largest in the world by market cap.1 Smaller companies that can’t meet the listing requirements of these major exchanges are considered unlisted and their stocks are traded over the counter.

What Is Preferred Stock?

Preferred stock is a distinct class of stock that provides different rights compared with common stock. While both types confer ownership in a company, preferred stockholders have a higher claim to the company’s assets and dividends than common stockholders. This elevated status is reflected in the name “preferred” stock.

Common Stock vs. Preferred Stock

Common and preferred stock both let investors own a stake in a business, but there are key differences that investors need to understand.

Common Stock vs. Preferred Stock
	Common Stock	Preferred Stock
Voting Rights	Holders have voting rights in the company and can participate in decisions about corporate policies and the election of the board of directors.	Generally, holders do not have voting rights, although this can vary depending on the specific share terms.
Dividends	Not guaranteed and are paid out at the board of directors’ discretion.	Usually fixed it must be paid before any dividends are given to common stockholders.
Liquidation Preference	Holders are last in line to claim any remaining assets, following bondholders and preferred stockholders.	Holders have a higher claim on assets and are paid out before common stockholders.
Convertibility	Cannot be converted into other forms of security.	May be converted to common shares based on terms.
Volatilability	Generally, more since it is more alert to company performance and market conditions.	Less, due to fixed dividends and a greater claim on assets.
Market Participation	Holders benefit directly from increases in the company’s value.	Typically, do not participate in the company’s growth beyond the fixed dividends.