Essay on rights of common abd preffered stockholders


Stockholders are individuals who own shares in a public or private company. In most circumstances, the shareholders are the legal owners of the limited companies. There exist common and preferred stockholders. Common stockholders partially own the company and have the voting rights on issues affecting the company. Preferred stockholders also partially own the corporation although they lack voting rights on issues affecting the company.

Rights of common stockholders

Right to share company assets-common stockholders have an equal share of the company profits based on per share basis. The common stockholders are the main claimants of the income and the assets of the corporation.
Control of the corporation-They has the right to control or rather manage the firm by electing the board of directors that later appoints the manager of a particular corporation. The common stockholders in developing firms hold various positions such as president of the board. The stockholders have the power to vote out the management if they do not carry out their duties in an effective manner.
Preemptive rights-common stockholders also have access to the preemptive rights. The preemptive rights are those that allow the existing shareholders to get access to some shares before they are offered to the public. The preemptive rights are provided for in the charters of the various companies.
The rights to vote common shareholders have access to the corporation’s annual general meetings in which they cast their votes (Albrecht, 2007). The can also use a proxy that is a legal document that can be used to represent others. Each of the stocks has only one vote for each director during the general meeting.
The common shareholders also have the opportunity to look through some of the records and the corporate books of the company deemed important. Common shareholders can also sue the management for wrongful acts on behalf of the company.

Rights of preferred stockholders

Preferred stockholders have a preference in the dividends. It, however, does not assure the payment of the various dividends although the corporation must pay them the stated dividends. The shares can be non-cumulative or cumulative. Cumulative preferred shareholders have the right to be paid by the company even if it takes a long time. The dividends of cumulative preferred shareholders accumulate when each dividend period passes.
Preferred shareholders also have the rights to have a stable liquidation value. The liquidation value is a representation of the amount of the money that was contributed by the individual during the first time the corporation issued its shares.
The preferred shareholders have a negotiated and fixed dividend amount. The dividend, in this case, is specified based on the percentage of each value. The dividends on the preferred shares can be termed floating, and they are subject to change based on the benchmark interest rate index.
Some of the preferred shareholders have voting rights during special events. During the special events such as the issuance of new shares, the preferred shareholders have the rights to vote (Albrecht, 2007). The preferred shareholders also have the right to vote during the acquisition of a new company.


Common shareholders have more rights compared to the preferred shareholders since they own the corporations. Common shareholders have exclusive voting rights, which their counterparts the preferred shareholders lack. Preemptive rights that are lucrative to the common shareholders make them acquire more shares than the preferred stockholders.


Albrecht, W. S. (2007). Accounting, concepts & applications. Mason, Ohio, Thomson/South-Western.