Ordinary share (common stock): a share that gives the holder essential shareholder rights, notably participation in the Company’s results and the right to vote in Shareholders’ meetings. Each ordinary share corresponds to one vote at these AGMs. Common stock holders elect directors of the firm and thus participate in determining its policies and direction. But their claim on the firm‘s assets are subordinate to those of debenture holders, preferred stock (preference share) holders, creditors, and statutory agencies (such as tax authorities).
Preference share (preferred stock): a share that gives the holder: (a) priority in the distribution of dividends, either fixed or minimum interest income; (b) priority in capital reimbursement, with or without a premium, (c) accumulation of these preferences and advantages. Holders of preferred stock have claim over the firm‘s earnings (and assets in case of liquidation) ahead of (senior to) the claim of holders of common stock (ordinary shares) but behind (junior to) the claims of bondholders and all other creditors. Depending on the terms of the agreement under which preferred stock is issued, the degree of control of its holders over the firm‘s operations ranges from none to the same as that of the holders of common stock.
