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

The distinction between common stock and preferred stock primarily lies in their characteristics and rights attached to them. Common stock represents ownership in a company and usually comes with voting rights, allowing shareholders to participate in corporate governance by voting on important issues such as electing the board of directors. Additionally, common stockholders benefit from potential capital appreciation and, although dividends may be paid, they are not guaranteed and can vary based on the company’s profitability and decisions made by the board.

On the other hand, preferred stock typically features fixed dividends that are paid out before any dividends are distributed to common stockholders. This fixed income aspect makes preferred stock more akin to a bond than common stock, as shareholders can count on receiving regular dividends at a predetermined rate. However, preferred stock generally does not carry voting rights, leaving holders without influence over corporate governance decisions.

This clarity in defining the functions and rights associated with common and preferred stock is what makes the statement concerning voting rights and dividend structure accurate and the correct choice.