Legal Definitions - nonparticipating preferred stock

Nonparticipating preferred stock is a type of stock that does not give the shareholder the right to additional earnings beyond those stated in the preferred contract. This means that the shareholder will not receive any surplus common-stock dividends beyond what is already agreed upon.

For example, if a company issues nonparticipating preferred stock with a dividend rate of 5%, the shareholder will only receive 5% of the stock's par value as a dividend, even if the company's earnings exceed expectations and there is surplus profit.

This type of stock is often preferred by investors who prioritize stability and predictability over potential additional earnings. It is also commonly used by companies to raise capital without diluting the ownership and control of existing shareholders.