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What is Preferred Stock?

Picture of a large tomato and a small tomato, symbolizing preferred stock and common stock

Preferred stock typically is issued to venture capitalists or other institutional investors. Its name is derived from the fact that it has significant “preferences” relative to common stock, which is the basic equity security that is issued when a corporation is formed.

Common stockholders’ principal right is to vote on the election of directors and on other fundamental corporate matters. In addition, common stock has the potential to increase in value if the corporation performs well financially.

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