What is Preferred vs. Common Stock?
The two main share classes - and why investors hold preferred while founders and employees hold common.
Preferred vs. Common Stock: definition
Common stock is straightforward ownership - one class, voting rights, last in line if the company is sold or wound down. Preferred stock, issued to investors in financing rounds, layers on protections: a liquidation preference (paid before common), anti-dilution rights, dividend rights, and often board representation. The gap in rights is why the same company’s preferred and common shares are valued differently - and why the 409A appraises common lower.
| Feature | Preferred | Common |
|---|---|---|
| Typical holders | Investors | Founders, employees |
| Liquidation priority | Paid first (preference) | Paid after preferred |
| Special rights | Anti-dilution, protective provisions, board seats | Basic voting only |
| Per-share value | Higher | Lower (basis for 409A) |
How Fintra handles it
Fintra tracks each share class on the cap table with its specific rights, so financings, conversions, and exits reflect the real terms. Preferences and participation flow into the liquidation-waterfall model, and the common-stock basis ties to the 409A used for option strikes - keeping ownership, valuation, and stock-comp accounting consistent.
Worked example
Frequently asked questions
Why do investors get preferred stock?
Preferred stock protects their investment through liquidation preferences (getting paid first), anti-dilution provisions, and governance rights like board seats. These protections are standard in venture financings and are why investors rarely take plain common stock.
Why is common stock worth less than preferred?
Because common lacks the preferences and protections preferred carries and is last in line in a payout. That lower value is what the 409A appraisal captures, which is why employee option strike prices (set on common) are well below the preferred price investors paid.
What rights does common stock have?
Common stock typically carries voting rights and a residual claim on value after all preferences are satisfied. Founders and employees hold common, so their upside depends on the company doing well enough to pay through the preferred stack.
How does Fintra track share classes?
Fintra records each class and its rights on the cap table, feeds preferences into the liquidation waterfall, and ties the common-stock basis to the 409A used for option strikes - keeping ownership, valuation, and accounting aligned.
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