7.2 Common and Preferred Stock

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A firm can obtain equity capital by selling either common or preferred stock. All corporations initially issue common stock to raise equity capital. Some later issue either additional common stock or preferred stock to raise more equity capital. Although both common and preferred stock are forms of equity capital, preferred stock has some similarities to debt that significantly differentiate it from common stock. Here we first consider the features of both common and preferred stock and then describe the process of issuing common stock, including the use of venture capital.

Common Stock

The true owners of a corporate business are the common stockholders. Common stockholders are sometimes referred to as ...

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