Common vs. Preferred Stock
How preferred shares differ from common shares, where each stands when money is paid out, and why preferred stock behaves partly like a bond.
The short version
Common stock is the standard kind of share: it usually votes and gets whatever is left after everyone else is paid, which means the most upside and the most risk. Preferred stock usually has no vote, but its dividends are paid before common dividends, and it ranks ahead of common stock if the company is liquidated. With a fixed dividend, preferred stock often behaves somewhat like a bond.
By the end of this lesson, you'll be able to
- Compare the rights of common and preferred shareholders
- Work through who gets paid first if a company is sold or liquidated
- Explain why preferred stock often behaves like a bond
Why this matters
This lesson is optional. Most individual investors own common stock, directly or through funds. But preferred shares show up in company reports, in some income-focused funds, and in any discussion of who gets paid when a company is in trouble. Knowing the difference sharpens your picture of where a common shareholder really stands.
Two kinds of shares
There are two main kinds of stock: common and preferred.1
| Common stock | Preferred stock | |
|---|---|---|
| Voting rights | Usually yes1 | Usually no2 |
| Dividends | Paid only after preferred dividends; can vary or be zero | Paid before common dividends, often at a fixed rate2 |
| If the company is liquidated | Paid last | Paid before common, after lenders2 |
| Upside if the company thrives | Unlimited | Usually limited to the set dividend |
Who gets paid first
When a company is sold or liquidated, money flows down a ladder: lenders and bondholders first, then preferred shareholders, then common shareholders with whatever remains.
STU Corp, a fictional company, owes lenders $70 million. Its preferred shareholders are entitled to $20 million before common shareholders get anything.
| Sale price | Lenders | Preferred | Common |
|---|---|---|---|
| $150 million | $70 million | $20 million | $60 million |
| $100 million | $70 million | $20 million | $10 million |
| $80 million | $70 million | $10 million | $0 |
As the sale price falls, common shareholders are wiped out first, then preferred. As it rises, every extra dollar goes to common. That's the tradeoff in one table: common stock carries the most risk and the most upside.
The rest of this lesson is for members
Still to come in this lesson: Features you'll see, Why preferred stock acts like a bond, Classes of common stock, the key takeaways, and a quiz question with explanations.
Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.
Go deeper
- What a Bond IsPart 2: What You Can Own
- Capital StructureCorporate Finance (depth track)
- Bankruptcy and RestructuringCorporate Finance (depth track)
Notes and sources
- Investor.gov, U.S. Securities and Exchange Commission. Stocks: FAQs. Checked 2026-09-27. Back to text
- Investor.gov, U.S. Securities and Exchange Commission. Glossary: Preferred Stock. Checked 2026-09-27. Back to text