Common vs. Preferred Shares

The two main types of shares issued by private corporations are common and preferred shares.

Common Shares

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), each share would be worth $1.00. Common shares are usually the only type issued at the time of incorporation.

Preferred Shares

Preferred shares are typically worth a fixed value that doesn’t change with the overall value of the corporation. They 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 paid out first in the event of a liquidation or dissolution of the corporation.