Preferred stock
Financial Accounting glossary · Stockholders' Equity
Definition
Equity security with preference over common in dividends and liquidation; may be cumulative, participating, convertible, or callable.
Preferred stock in plain English
Preferred stock is a special class of ownership in a company that gets to cut to the front of the line ahead of regular ('common') owners. If the company hands out dividends (cash payments to owners) or gets sold off, preferred holders get paid first, before common holders see a dime, in exchange for usually giving up voting power. Think of it like a priority boarding pass: you don't own more of the plane, you just get served earlier. Preferred shares come in flavors: 'cumulative' (unpaid dividends pile up and must be paid later), 'participating' (can share in extra profits), 'convertible' (can be swapped into common shares), and 'callable' (the company can buy them back).
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