Preferred Stocks (Preferred Share) Definition
Like common stock, shares of preferred stocks (preferred share) represent ownership of a public corporation. However, unlike common stock, preferred stock typically does not give the owner voting rights.
Preferred stock usually pays a dividend. But due to its preferred status, preferred stockholders will receive dividend payments before common stockholders. For example, if, for whatever reason, the company does not have enough cash to meet all of its dividend payment obligations, the common stockholders will not begin to receive dividends until after all of the preferred stockholders have received their dividends.
Likewise, if the company were to go out of business and liquidate its assets, preferred stockholders have seniority over common stock holders. Preferred stockholders have a higher ranking claim to the liquidated assets than common stockholders. Common stockholders will not have access to liquidated assets until all of the preferred stock holders have been paid off.
Preferred stock may have a convertible provision, allowing it to be exchanged for shares of common stock under certain specified circumstances.
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See Also:
Company Valuation
Fixed Income Securities
Arrears
Subscription (Preemptive) Rights
