There are two main types of shareholders: those who own common stocks and those who own preferred stocks, states Fox Business. Common stock holders face greater risks and profits, while preferred stock holders are assured of regular income and lower risk, says CNBC.
Common stockholders own a part of the company and enjoy voting rights. They are entitled to dividends each quarter and can also benefit from an increase in the price of the shares in the stock market, explains Fox Business.
On the other hand, preferred stockholders are not entitled to vote, they get a fixed regular quarterly dividend, and their income is not affected by stock market fluctuations. This mitigates the risks involved in investing in shares even as they get to own a part of the company, according to CNBC.
However, preferred stocks are not entirely risk-free as the company can stop dividend payment if it is hard-pressed for cash. In case a business declares bankruptcy, preferred shareholders are paid after creditors and bond holders have been settled, while common stockholders are the last to be paid. Over the long term, common stocks offer better returns than preferred stocks to shareholders because of the rise in prices of the shares in the market, points out CNBC.