Preferred stock

Preferred stock is a class of corporate shares with priority over common stock for dividends and liquidation proceeds, usually in exchange for limited voting rights.

Common stock: Common stock represents residual ownership in a corporation, usually with voting rights and dividends paid after preferred claims. Its lower dividend and liquidation priority defines the central distinction between the two share classes.
Cumulative preferred stock: Cumulative preferred stock carries unpaid dividends forward, requiring them to be paid before common dividends. This provision protects preferred holders when a company skips a scheduled dividend.
Venture capital: Venture capital is equity financing provided to young companies with high growth potential. Investors commonly receive preferred shares with negotiated governance and exit protections.
Corporate bond: A corporate bond is debt issued by a company, obligating it to make payments under stated terms. Bondholders are creditors with contractual claims, while preferred shareholders hold equity and may face dividend suspension.
Dividend: A dividend is a distribution of corporate earnings or assets to shareholders. Preferred shares commonly promise a specified dividend before common shareholders receive distributions.
Convertible preferred stock: Convertible preferred stock can be exchanged for a specified number of common shares under defined terms. Conversion lets holders trade preferred protections for potential common-stock gains.
Series A financing: Series A financing is an early institutional investment round, often used to fund a startup’s growth after initial validation. It commonly establishes a startup’s first major class of preferred shares.
Mezzanine capital: Mezzanine capital is financing that combines debt and equity features and ranks below senior debt. It can resemble preferred stock in its position between senior claims and common equity.
Liquidation preference: A liquidation preference gives specified investors priority to receive proceeds when a company is sold or wound up. It describes preferred shareholders’ claim ahead of common stock when corporate assets are distributed.
Participating preferred stock: Participating preferred stock receives its stated preference and may also share in remaining distributions. Participation can let preferred holders collect beyond their initial liquidation priority.

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