What is preferred stock?

Preferred stock represents an ownership stake in a company. Preferred stock differs from common stock in that it takes precedence (hence, preferred) over common stock with respect to dividend and liquidation payments. While the terms of preferred stock are negotiable and varied, possible features of preferred stock include: 

  • Convertible to common stock shares at the option of the shareholder, either into a fixed amount of common stock or a percentage of common stock outstanding on a future date - while maintaining key preferred rights
  • Anti-dilution provisions;
  • And a set dividend payment that can generate return before an exit