Preferred stock means preference shares issued by company to investors become shareholders of the company with certain preferred stock or some favorites conditions.
What is preferred stock?
The share capital of a company is divided into units of small denomination. These units are called shares. It may be equity and preference stock or Preferred stock.
Preferred Stocks vs Common Stock , Preferred stock has a feature as compared to equity shares. It may be priority over the other stocks in the company for claiming rights. The terms under which the stock issued is described in the articles of association of the company.
What is Common Stock? it does not have the following right. Preferred stocks are those which have to satisfy the basic conditions.
- The preferred shareholders have right to receive dividend. The dividend should be paid at a specified rate before any dividend is paid.
- Other right is redemption of capital. To return of capital in case of winding up before the capital of equity share holders is returned.
What is Preferred Stocks Dividend – the stock dividend is return of shares in future with certainty of cash flow.
The preferred stock has features which are generally in connection with preferred stock are as follows –
- Preference dividends
- In case of liquation of company preference in assets
- Conversion option i.e., converts into common stock.
- No voting rights or restricted to some extent.
Types of preferred – stock
Generally a company issues this type of stocks in the following types. It may be Top 10 Preferred Stocks or most investors may be bought.
- Cumulative preferred stocks
- Non – cumulative stock
- Non- participating
- Non- convertible
- Non redeemable
Cumulative Preference Shares – This type of holders have the right to receive arrears of dividend out of the subsequent years’ profit.
Non cumulative Preference Shares – In this case, arrears of dividend are not paid.
Participating Preference Shares – normally this type of holders participates in surplus profit. That is holders have the right to share profits remaining after the payment of dividend to the equity shareholders. They also enjoy the right to participate in the surplus remaining after the repayment of capital of equity shareholders in case of winding-up of the company.
Non Participating Shares – It is as good as ordinary preference shares, which carry only fixed rate of dividend. The return of income is certainty.
Convertible Preference Shares – it has option to convert onto other form of shares or stocks as per agreed terms of conditions. These are shares, which can be converted into an equity shares.
Non-Convertible Preference Shares – Shares which cannot be converted into equity shares, is called a non-convertible preference share. Except the Articles or terms of issue permits preference shares are deemed to be non-convertible.
Redeemable Preference Shares – this type of holders have right recovery of capital. These shares are redeemed or repaid in accordance with the terms of issue after a specified period. Companies prefers now issue only this category of preference shares.
Irredeemable Preference Shares – these shares are cannot be refunded before winding-up of the company. In todays the corporate entity prefers all the preference shares must be redeemable. Click here.
Originally posted 2015-03-02 01:35:40.