Definition of preferred share

This is also known as preferred stock.  As the name implies this particular class of capital has preferential treatment over the ordinary or common share capital of a company.

Holders of preferred capital shares receive dividends at at a fixed annual rate and are paid before the ordinary shareholders receive their dividends. If there is insufficient earnings to pay both preferred and ordinary dividends then the preferred will always have priority of payment.

Preferred may be cumulative and noncomulative. If it is cumulative and the fixed dividend remains unpaid, then no dividends may be paid to the ordinary shareholder until the accumulated preferred dividends have been paid in full. [1]

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