Most private and publicly traded companies issue shares. Equities, shares and stock are terms which are used interchangeably. The owner of a share is known as a shareholder or stockholders. These people represent fractional ownership the company. A company can issue 2 type of shares a) Preferred shares and b) Common shares.
Preference shares are one part of the overall share capital of a company. Preferred shares entitle their owners to receive a fixed amount of dividend before it is paid to the common shareholders. Due to this preferential treatment, they are known as preference shares. The preference does not assure the payment of dividends, but the company must pay the stated dividends on preferred stock before paying any dividends on common stock. Preferred stocks are also known as hybrid instruments due to their feature of receiving a fixed amount of dividend. One shortcoming of preferred shares is that many are non-voting.
Common shareholders are the owners of a company. Purchasing common shares makes the shareholder a part-owner of the company. Common shareholders are entitled to dividends, if when a company declares it. Dividends are distributed out of the companies’ profits and are paid out to shareholders, once the company has met all of it’s obligations. The holders of common shares are entitled to voting rights. They can cast their votes based on the number of shares owned. They can vote on all the major events in the company as they are part owners of the company. While interest payments are guaranteed to debtors, dividends are payable to shareholders at the discretion of the directors of a company.