Common Stock: The Founder and Employee Class
Common stock is the baseline class issued at incorporation. Founders typically receive 100% common stock, and employees later receive options that exercise into common stock. Common stock has one vote per share, no liquidation preference, no anti-dilution protection, and no contractual veto rights beyond what corporate law grants any shareholder.
Common is the most junior class in every distribution waterfall: it is paid only after all debt, all preferred preference, and all participating preferred secondary distributions. In a mid-sized exit where the preference stack consumes most of the proceeds, common shareholders can receive zero — even at a headline price that sounds successful. See [exit waterfall](/captable/exit-waterfall) for the full mechanics.
In Delaware, common stock is a single uniform class. In German GmbHs, the equivalent is a single class of Geschäftsanteile, each with voting rights proportional to nominal value. In an AG (since the 2023 reform allowing dual-class structures), founders may issue different common classes with differing voting rights, similar to US dual-class.
Preferred Stock: The Investor Class
Preferred stock is the class issued to venture investors in priced rounds. The 'preference' refers to the contractual rights that elevate preferred above common: liquidation preference (paid first at exit), anti-dilution protection (re-priced in down rounds), protective provisions (veto rights on key actions), board seats (governance control), information rights (financials, budgets, audits), and pro-rata rights (right to invest in future rounds).
Each financing round typically creates a new sub-class: Series Seed Preferred, Series A Preferred, Series B Preferred. Each sub-class can have different economic terms — different preference multiples, different participation status, different anti-dilution flavours. The cap table tracks each sub-class separately because each carries a different bundle of rights.
In Germany, preferred shares are typically structured contractually rather than as a separate corporate share class — the rights live in the shareholders' agreement (Gesellschaftervereinbarung) and Satzung amendments. The economic effect is the same; the legal mechanism is different. See [shareholder agreements](/captable/shareholder-agreements) for the contractual layer.
Series Seed vs. Series A vs. Series B Preferred
The differences between preferred sub-classes are mostly quantitative rather than structural. All preferred classes share the same basic rights — preference, anti-dilution, protective provisions — but the magnitude and flavour scale with the round.
Series Seed Preferred (€500K–€3M rounds): 1x non-participating preference, broad-based weighted-average anti-dilution, simple protective provisions (sale of company, change of share class, dissolution), one board observer or seat. Some seed rounds use SAFEs or convertible notes instead and only convert to Series Seed Preferred at the next priced round. See [seed funding](/captable/seed-funding) and [convertible notes & SAFEs](/captable/convertible-notes-safes).
Series A Preferred (€3M–€15M rounds): 1x non-participating preference (standard), broad-based weighted-average anti-dilution, fuller protective provisions (now including budget approval, debt incurrence, key hires), board seat (often two seats once lead investor and independent are seated), pro-rata rights, redemption rights in some markets. See [series A](/captable/series-a).
Series B Preferred (€10M–€50M rounds): 1x non-participating preference is still standard but participating preferred reappears in competitive deals, broad-based weighted-average, full board seat, expanded protective provisions, drag-along on a majority of preferred. See [series B growth rounds](/captable/series-b-growth-rounds).
Conversion Mechanics: How Preferred Becomes Common
Every preferred share has a conversion right — the holder can elect to convert preferred into common at the conversion ratio defined in the financing documents. The initial ratio is 1:1 (one preferred share converts to one common share) and only changes if anti-dilution adjustments fire.
Conversion happens in three situations. Voluntary conversion: the holder elects to convert. In practice this happens only when conversion yields more proceeds than the preference path at exit. Automatic conversion: triggered by a qualified IPO (typically defined as an offering above a minimum size at a minimum valuation). Mandatory conversion: triggered by a vote of a defined majority of the preferred class.
The conversion ratio is also adjusted by anti-dilution mechanics. Weighted-average anti-dilution slightly increases the ratio after a down round (one preferred share now converts to, say, 1.1 common shares). Full-ratchet anti-dilution adjusts the ratio so the original preferred price equals the new down-round price — a much larger adjustment. See [anti-dilution](/captable/anti-dilution).
EU Jurisdiction Differences: GmbH, AG, BV, and Delaware C-Corp
German GmbH (the dominant startup vehicle in Germany and Austria) uses a single class of Geschäftsanteile, each with voting rights proportional to nominal value. Preferred-style rights are layered on contractually through the Gesellschaftervertrag and shareholders' agreement. There is no separate 'preferred share class' on the company register — the cap table shows one class of shares with contractually defined rights for each holder.
German AG (used for some growth-stage startups, especially those targeting eventual IPO) supports multiple share classes natively. Since the 2023 ZuFinG reform, AGs can issue Mehrstimmrechtsaktien (multiple voting shares) up to 10:1 — opening the door to dual-class structures for founder control. See [dual-class shares](/captable/dual-class-shares).
Dutch BV (popular for European holding structures and the Dutch tech ecosystem) supports multiple share classes (Aandelen) similar to Delaware. Series A, B, C structures translate cleanly to BV equivalents and the legal documentation is closer to US conventions than German GmbH.
Delaware C-Corp (US default and the international standard) supports unlimited share class flexibility. Most international startups eventually 'flip' to a Delaware C-Corp HoldCo when raising US-led rounds. The flip rebuilds the cap table inside the C-Corp; the German or Dutch entity becomes a subsidiary. See [international cap table](/captable/international-cap-table) for the flip mechanics. The four-jurisdiction comparison is captured most clearly by looking at the [fully diluted capitalization](/captable/fully-diluted-capitalization) of the same company under each structure.