It represents an ownership interest in a corporation, including an interest in earnings, that translate into declared dividends, as well as an interest in assets distributed upon dissolution. Common stock may be voting or non-voting and may be divided into classes with special voting privileges assigned to each class. However, common stock is typically entitled to full voting rights, i.e., the right to cast a vote in the election of directors of the corporation. Holders of common stock have the greatest opportunity to share in a company's profitability because of the unlimited potential for dividends, appreciation in the value of their common stock, and realization of liquidation proceeds. However, common stock holders also bear the greatest risk of loss because they are generally subordinate to all other creditors and preferred stock holders.
Preferred stock is another form of equity instrument.
It represents a hybrid in the sense that it is an equity interest with certain features resembling debt. Preferred stock has preference rights over common stock with respect to dividends and liquidation proceeds. In other words, it has priority when dividend payments and liquidating distributions are made. If desired, dividends can accrue at a pre-established rate and can be paid on a cumulative basis when cash flow permits. Also, preferred stock may be voting or non-voting or entitled to certain redemption rights.