What are preferential stocks?

also known as preferred stocks or preferred shares, preferential shares are stock options that provide payments to preferred investors before any dividends are paid to the holders of the ordinary shares issued by the same company. In most cases, the amount of this dividend is fixed, unlike variable dividends, which is available to investors with ordinary shares. The possession of these types of shares is associated with several advantages, although investors with preferred shares usually do not have the same voting authorities as investors with ordinary shares.

Two of the leading benefits associated with the ownership of preferential shares are fixed payments of dividends and the status of the elderly if the issuing entity should declare bankruptcy. With a fixed amount of dividend, investors may depend on receiving the specific occurrence of the return on their shares, if the company generates sufficient profit to comply with the conditions under the Agreement on the Joint Agreement, it has been dealing with dividends.Assuming that the company remains financially stable and is able to maintain its market share, it means that payments are regular and easily predictable.

preferential holders also take precedence if the corporation must undergo liquidation. Investors with preferred shares will receive a certain type of compensation for their shares before any investors with ordinary shares. Depending on the laws that apply in the area where the enterprise is located, the jurisdiction court often determines how much compensation for each preferential shares is accepted. This greater entitlement to the Company's assets increases the opportunity to avoid loss if and when the company fails and its assets must be liquidated in order to compensate for outstanding debts to creditors and other types of creditors.

While there are advantages for ownership of preferential shares, there are also some disadvantages. Investors who hold preferred shares,usually does not participate in the voices received at the General Meetings. This is unlike investors with ordinary shares who usually vote at these meetings. Moreover, solid dividend payout conditions often require that the company gain a certain level of profit before dividends are issued to shareholders of any type, especially preferred shareholders. This means that a company working with a deficit does not have to issue payments to preferential investors for a longer period of time. While investors with preferential shares will receive dividends before any payments are offered to investors with ordinary shares, holding preferred shares does not automatically guarantee that dividends will be issued in all cases.

It is not uncommon for companies to issue preferential shares that are considered convertible. This means that under certain circumstances Shares can be converted from the possibility of ordinary shares. Depending on the conditions related to the issuance of shares, investors may have under certain circumstancesThe possibility to apply for conversion. The conditions will also allow the issuer to convert if there are certain events on the market that will change the best interests of all involved.