A corporation can issue two types of stock: common and preferred.  

Common stock represents an ownership interest in the corporation, which can be voting or nonvoting common stock. Preferred stock also represents an ownership stake in a corporation; however, it generally differs from common stock in the following ways:

  • No Voting Rights. Preferred shareholders generally have no voting rights. Common shareholders have voting rights unless it is a separate class of nonvoting common stock. 
  • Preferential Right to Dividends. Preferred shareholders generally receive a fixed dividend per share, which is paid before any dividends are declared and paid to other classes of stock, such as the common shareholders. 
  • Liquidation Preference. If the corporation decides to cease operations and dissolve, the preferred shareholders have a senior claim to company assets over the common shareholders.
  • Change in Share Price. The price action for preferred shares is not as volatile as common stock. Usually, the price trades at or around the par value per share.

Example Corporate Charter

On January 31, 2023, Corporation XYZ Inc. filed its Certificate of Incorporation in the State of Delaware. The charter lists the corporation is authorized to issue one class of common stock and one class of preferred stock. The details are the following:

Class A Common Voting
Par Value per Share: $0.0001
Number of Authorized Shares: 10,000,000

Series A Preferred Stock
Par Value per Share: $25
Number of Authorized Shares: 50,000

The corporation issues all 50,000 preferred shares for total proceeds of $1,250,000. Under the terms of the Preferred Stock Purchase Agreement, holders of the outstanding shares of Series A Preferred Stock shall be entitled to receive a dividend at the rate of 3% of the original issue price per share per annum, payable in preference to common shareholders.

Balance Sheet Reporting

The corporation tracks these values on separate line items on the balance sheet. The equity section typically consists of individual line items for common stock at par value, preferred stock at par value, additional paid in capital (APIC), retained earnings, adjustments to shareholders’ equity, and reductions to equity for treasury stock.