Non-participating preferred stock is a type of equity security that provides shareholders with a fixed dividend. Unlike other classes of preferred stock, it does not allow shareholders to receive additional earnings beyond the specified dividend amount, even if the company performs exceptionally well. This means that the dividends are set and do not fluctuate based on the company's profitability.
This term is commonly used in corporate finance and securities law. Non-participating preferred stock is relevant in contexts such as:
Users may encounter this term when reviewing investment documents or corporate bylaws. Legal forms related to issuing or transferring preferred stock can be found through resources like US Legal Forms, which provide templates drafted by attorneys.
Here are a couple of examples of abatement:
Example 1: A company issues non-participating preferred stock with a fixed dividend of five percent. Regardless of whether the company earns significant profits, shareholders will only receive that five percent dividend.
Example 2: An investor holds non-participating preferred shares in a startup. Even if the startup declares a large profit and issues bonuses to common stockholders, the investor will only receive the agreed-upon fixed dividend. (hypothetical example)
Examples of state differences (not exhaustive):
| State | Key Differences |
|---|---|
| California | Specific regulations on dividend payments for preferred stock |
| Delaware | Commonly used for corporate formations; laws favor flexibility in stock classes |
| New York | Additional disclosure requirements for preferred stock offerings |
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
| Term | Definition | Key Differences |
|---|---|---|
| Participating Preferred Stock | A type of preferred stock that allows shareholders to receive additional dividends beyond the fixed rate. | Participating preferred stock offers potential for higher returns compared to non-participating stock. |
| Common Stock | Equity ownership in a company that typically includes voting rights and potential for dividends. | Common stockholders have rights to additional earnings and voting privileges, unlike non-participating preferred stockholders. |
If you are considering investing in non-participating preferred stock, it's important to:
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| Attribute | Details |
|---|---|
| Dividend Type | Fixed |
| Shareholder Rights | No voting rights unless specified |
| Priority | Over common stock in dividend payments |
The main benefit is the fixed dividend, which provides predictable income for investors.