Preferred shares – also known as preference shares or collectively as preferred stock – are certificates of ownership in a publicly traded company which entitle their holders to special privileges.
Holding preferred shares may entitle a shareholder to subscription rights, allowing them to purchase new share issues at a preferential rate before they are made available to the general public.
Holders of preferred shares are typically have first rights to payment of dividends – including dividend payments in arrears – before dividends are distributed to holders of ordinary shares. They may also be paid dividends at a preferential rate which is higher than that applied to ordinary shares.
Preferred shares may also be considered privileged assets in the event of corporate bankruptcy, with holders of preferred shares being first in line for reimbursement ahead of holders of ordinary shares when corporate assets are liquidated and distributed to creditors.