Features of preffered stock
Preferred stock is a special class of shares which may have any combination of features not possessed by common stock. The following features are usually associated with preferred stock: Preference in dividends
Preference in assets, in the event of liquidation
Convertibility to common stock.
Callability, at the option of the corporation
In general, preferreds have preference to dividends payments. A preference does not assure the payment of dividends, but the company must pay the stated dividend rate before paying dividends on common stock. Preferred stock may be cumulative or noncumulative. A cumulative preferred requires that if a company fails to pay a dividend (or any amount) below the stated rate, it must make up for it at a later time. Dividends accumulate with each passed dividend period (which may be quarterly, semi-annually or annually). When a dividend is not paid in time, it has "passed"; all passed dividends on a cumulative stock make up a dividend in arrears. A stock without this feature is known as a noncumulative, or straight, preferred stock; any dividends passed are lost if not declared. Other features or rights of preffered stock
Preferred stock may or may not have a fixed liquidation value (or par value) associated with it. This represents the amount of capital which was contributed to the corporation when the shares were first issued. Preferred stock has a claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value, unless otherwise negotiated. This claim is senior to that of common stock, which has only a residual claim. Almost all preferred shares have a negotiated, fixed-dividend amount. The dividend is usually specified as a percentage of the par value, or as a fixed amount (for example, Pacific Gas & Electric 6% Series A Preferred). Sometimes, dividends on preferred shares may be negotiated as floating; they may change according to a benchmark interest-rate index (such as LIBOR). Some preferred shares have special voting rights to approve extraordinary events (such as the issuance of new shares or approval of the acquisition of a company) or to elect directors, but most preferred shares have no voting rights associated with them; some preferred shares gain voting rights when the preferred dividends are in arrears for a substantial time. The above list (which includes several customary rights) is not comprehensive; preferred shares (like other legal arrangements) may specify nearly any right conceivable. Preferred shares in the U.S. normally carry a call provision, enabling the issuing corporation to repurchase the share at its (usually limited) discretion.
Features of common stock
Common shareholders also have the right to receive dividends, if and when they are authorized by the corporation's board of directors. Although dividends are not guaranteed, and many corporations do not pay them, all holders of common stock receive the same dividend amount per share when they are authorized. Although there is no fixed schedule for the payment of dividends, most corporations pay them on a quarterly basis. Dividends may be periodically increased, decreased or discontinued depending upon the financial success of the corporation. Dividends are normally paid in cash, although they may also be paid in additional shares of stock.
If and when a corporate merger is approved by shareholders, they have the right to receive financial consideration for the shares they own. Typically they will receive a cash payment for their shares, or in the case of an acquisition of the corporation by another company, they may receive shares in the acquiring company in exchange for the shares they currently own. Normally, shareholders must vote to approve a merger before they receive any such consideration.
Dissolution and Liquidation
In the event that a corporation is dissolved and/or...
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