Preferred Stock


Preferred stocks (also called preferred shares or preference shares) are a class of ownership in a corporation whose holders have a higher claim on the assets and earnings than common stockholders. This results in them being guaranteed priority in the payment of dividends (and/or assets in the cases of corporate dissolution), up to a certain amount, before the common shareholders are entitled to anything. However, preferred shareholders do not have the right to vote in corporate elections or share in corporate profits.

The precise details as to the structure of preferred stock are specific to each corporation. However, the best way to think of preferred stock is as a financial instrument that has characteristics of both debt (fixed dividends) and equity (potential appreciation). Additionally preferred stocks rank between bonds and common stock in priority of claims on the company.