Corporation Shareholders - Advantage and Disadvatage of Common and Preferred Share Holders

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As we mentioned in the previous article, we know that corporations generally are started by it's original shareholders who provide the start-up cash or assets in exchange for their shares. The corporation may eventually be owned by a large number of shareholders. There are 2 types of corporation shares: common shares and preferred shares. These shareholders have certain rights:

1. Common share holders
a) Advantage
* right to share in growth of earnings and assets.
*right to sell shares.
* right to vote on Board of Directors and certain issues.
* right to attend company meetings and examine the books.
* right to annual report.
* receive a tax credit on Canadian corporate share dividends.

b) Disadvantage
* last to receive a portion of assets on wind-up of a company.
*dividends are only paid when declared and are related to amount of net earnings.
*dividends are paid after bond interest and preferred share dividends.

2. Prefer share holders
a) Advantage
* dividends are paid before common shareholders but after bond interest
* bonds holders come before preferred shares at the wind-up of the company.

b) Disadvantage
* Less indication of company ownership
* Corporation dividends are usually fixed by the share certificate and affected by the profitability of the company and the intent of the Board of Directors.

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