What is the difference between Common Stock and Preferred Stock?

Common Stock is the default voting stock of a corporation. In addition, a corporation may have non-voting common stock and preferred stock. The most important quality of Preferred Stock is a preference upon liquidation; this generally means that preferred shareholders get paid first upon the sale of the company. For example, if a start-up that accepts $3 million of venture capital for 20% of the company is later acquired for $3 million, venture capitalists holding preferred stock might receive the lion's share of the $3 million despite their relatively small 20% share.

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