Common Stock Vs. Preferred Stock
Essay by knorin25 • August 21, 2017 • Course Note • 517 Words (3 Pages) • 1,119 Views
COMMON STOCK vs. PREFERRED STOCK
Common Stock |
Preferred Stock | |
Company’s Asset and Earnings | less | greater |
Dividends | Latter/Less (upon board of directors approval) | Priority/Greater (paid at regular interval) |
Voting Rights (for corporate policy & board of directors) | YES | NONE |
After Liquidation | Latter | Priority |
Value | Demand/Supply of the market participants | Par Value (when interest is high value goes down vice versa) |
Sample | Authorized Stocks, Issued Stock, Treasury Stock, Outstanding Stock |
|
Preemptive Rights (privilege to buy share before made public) | YES | NONE |
Risk | High | Low |
Maturity Date | NONE | YES |
| Cannot be converted to preferred shares | Can be converted to fixed numbers of common shares |
Types of common stock
Authorized Stock – is the total number of shares a corporation is allowed by the corporate charter to issue to shareholders. It can’t be changed unless the charter is rewritten because an expansion, merger, or some other change of entity type.
Example
SMS Corp is a Car manufacturer. SMS is a family company and has been in business for 30 years. The corporate charter authorized SMS to issue 50,000 shares, but there are only 30,000 shares currently issued to shareholders. SMS owns 15,000. His wife owns 10,000 and his two children both own 2,500 shares. This means that if the company wanted to take on more investors, it could issue another 30,000 shares of common stock.
On the equity section of SMS balance sheet, the total number of outstanding (30,000) and authorized (50,000) shares would be listed for external users to evaluate.
Types of common stock
Issued Stock – The total number of a company’s share that have been sold and are held by shareholders. Issued stock can be held both by insiders and by the general public.
Treasury Stock – is stock repurchased by the issuer and intended for retirement or resale to the public.
Outstanding Stock - refers to all shares currently owned by stockholders, company officials, and investors in the public domain, but does not include shares repurchased by a company.
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