Common vs. Preferred shares
The two main types of shares issued by private corporations are common and preferred shares. Each are described below.
Typically common shares do not have a fixed value. They are equity shares, meaning their value increases and decreases with the overall value of the corporation. If a corporation has a value of $100 and has 100 common shares (and no preferred shares), the common shares should be worth $1.00 per share. Common shares are usually the only type of shares issued at the time of incorporation.
Typically preferred shares are worth a fixed value, meaning, their value doesn’t change with the overall value of the corporation. Fixed value preferred shares are typically used for tax or transition planning purposes and are not usually issued at the time of incorporating a small private corporation. The word “preferred” refers to the fact that these shares are entitled to be paid out in “preference” to the common shares of the corporation in the event of a liquidation or dissolution of the corporation.
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