Do common stocks and preferred stocks have any differences in terms of percentage of the company per unit they represent?

Question

Forgive me but I'm totally ignorant on this regard. Given that I may not be able to ask the right question.

AFAIK, they differ in terms of how dividends are being paid and by how much. But do common stocks and preferred stocks have any differences in terms of the percentage of the company per unit they are representing? If they represent the same amount of shares or percentage of the company per unit, shouldn't they be sold at the same price and should be paying the same amount of dividends (or equivalent profit) per unit?

I'm simply trying to understand why there has to be a distinction between preferred stocks and common stocks. (i.e., why do we have preferred stocks and common stocks instead of just simply common stocks for simplicity's sake?)

Answer 1

Typically, preferred shares come with one or both different benefits - a disproportionate share of votes, say 10 votes per share vs the normal 1, or a preferred dividend.

The vote preference is great for the owner(s) looking to go public, but not lose control of the company. Say, I am a Walton (of Walmart fame) and when I went public, I sold 80% of the (1000 share total) company. But, in creating the share structure, 20% of shares were assigned 10 votes each. 800 shares now trade with 800 votes, 200 shares have 10 votes each or 2000 votes. So, there are still the 1000 shares but 2800 votes.

The 20% of shares now have 2000/2800 or 71% of the total votes. So, my shares are just less than half ownership, but over 78% of votes.

Preferred dividend is as simple as that, buy Stock A for ownership, or (same company) Stock A preferred shares which have ownership and $1/yr dividend.

Edited to show a bit more math. I use a simple example to call out a total 1000 shares. The percentages would be the same for a million or billion shares if 20% were a 10 vote preferred.

Answer 2

Preferred stocks are, err... Preferred.

The whole point of preferred stocks is that they have some preference over other classes of stocks (there may be more than 2, by the way). It can be more voting rights, more dividends or priority on dividends' distribution (common with VC investments), or priority on liquidations (in bankruptcy, preferred stock holders are ranked higher than common). Many times initial or critical investments are made on preferred terms, and the stocks are converted to common when certain thresholds are met.

Obviously all these benefits require a premium on the price.