Preferred stock financing
The term stock means “ownership” or equity in a company. There two types of capital, that is common stock and preferred stock. Many companies usually issue preferred stock, also known as preference shares, to investors to appeal to them of receiving dividends regularly. The preferred stock has a higher priority than common stockholders in terms of dividends, which produces more than the common stock and can be paid every month or even quarterly. As a source of capital for a company, preferred stock takes an intermediate place between long-term debt and common stock. When it comes to long-term debt, it is seen as a fixed-income security, though they get dividends instead of interest payments. Compared to long-term debt, preferred stock is a more permanent way of financing. The reason for this is that the issuing firm does not guarantee repayment at a specific time (Oranburg, 2016).
Types of Preferred Stocks.
There are several types of preferred stock. First, there is Prior Preferred Stock, which is usually paid in case a firm has enough cash to achieve a dividend schedule on one of the preferred stocks. Secondly, there is Preference Stock, which ranked behind the prior type. They receive preference over all other kinds of equities of a given company expect for the prior stock. Thirdly, there is convertible Preferred stock, which is preferred stock which shareholders can exchange for a preset number of the common stock of the company. Additionally, we have participating preferred stock, which allows the investors to get extra dividends in cases where the firm attains some preset financial goals. Lastly, there is cumulative preferred stock, which are missed dividends, and it increases and must be reimbursed before paying the common stockholders their dividends (Reiser & Dean, 2016).
References
Reiser, D. B., & Dean, S. A. (2016). Financing the benefit corporation. Seattle UL Rev., 40, 793.
Oranburg, S. C. (2016). Start-up financing. In Start-Up Creation (pp. 57-73). Woodhead Publishing.