What is the key difference between common stock and preferred stock?

The key difference between common stock and preferred stock lies in the voting rights associated with each type of equity. Common stockholders possess voting rights, allowing them to participate in significant company decisions, such as electing the board of directors or approving corporate policies. This feature makes common stock a preferred choice for investors who wish to have a say in the company's governance.

In contrast, preferred stock typically does not provide voting rights to its holders. Preferred shares are often considered a hybrid investment, combining features of both stock and debt. Therefore, while preferred stockholders may receive fixed dividends and have a higher claim on assets during liquidation compared to common stockholders, they do not enjoy the same level of involvement in company decisions.

Understanding this distinction helps investors determine their priorities, whether they value potential capital appreciation and a say in company matters (common stock) or prefer fixed dividends and reduced risk (preferred stock).