How do common and preferred stock differ?

Common stock and preferred stock have distinct characteristics that cater to different investor needs. The correct answer highlights that common stock typically includes voting rights, allowing shareholders to participate in corporate governance processes, such as electing the board of directors and influencing major corporate decisions. This aspect of common stock gives its holders a say in how the company is run.

On the other hand, preferred stock is structured differently, mainly focusing on providing fixed dividends. This makes preferred stock more akin to a bond, as it often guarantees a specific dividend payment regardless of the company's profitability, providing a level of income stability for investors. Preferred shareholders typically do not have voting rights, which contrasts sharply with the governance rights associated with common stock.

The other options present misunderstandings or inaccuracies about the nature of these stock types. While common stock does not guarantee fixed dividends, preferred stock generally does, but not in a way that precludes the potential for variable dividends in some contexts. The assertion that common stock can only be issued by new companies is incorrect, as established companies frequently issue common stock too. Lastly, stating that both stock types have the same rights in corporate governance is misleading, as it disregards the key distinction in voting rights inherent to common stock.