Legal Definitions - Preferred stock

Preferred stock is a type of stock that gives the holder the right to be paid first, before common stockholders, in case of a dividend or liquidation payout. However, preferred stock does not come with voting rights.

For example, if a company declares a dividend of $1 per share and has both preferred and common stockoutstanding, the preferred stockholders will receive their $1 per share before any payment is made to the common stockholders. If there is any money left over after paying the preferred stockholders, then the common stockholders will receive their share of the dividend.

Another example is if a company goes bankrupt and is liquidated, the preferred stockholders will be paid first from the proceeds of the liquidation before any payment is made to the common stockholders.

Preferred stock is a way for companies to raise capital without diluting the voting power of existing shareholders. It is also a way for investors to receive a steady stream of income without taking on the same level of risk as common stockholders.