There are two classes of stock that companies offer: common and preferred. These come with different financial terms and offer different rights in relation to the governance of the company. Here are some of the key differences between these two types of stock and the implications for how each type is used.

Common Stock
The holders of common stock can reap two main benefits from the issuing company: capital appreciation and dividends. Capital appreciation occurs when a stock's value increases over the amount initially paid for it. The stockholder makes a profit when he or she sells the stock at its current market value after capital appreciation.

Dividends, which are taxable payments, are paid to a company's shareholders from its retained or current earnings. Typically, dividends are paid out to stockholders on a quarterly basis. These payments are usually made in the form of cash, but other property or stock can also be given as dividends. Payment of dividends, however, hinges on a company's capacity to grow — or at least maintain — its current or retained earnings. This means that ongoing payment of dividends cannot be guaranteed.