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Noncumulative perpetual preferred stock is a type of preferred stock issued by a company that does not require the company to pay dividends if it chooses to waive them. Unlike cumulative preferred stock, any unpaid dividends do not accumulate over time and do not create a future obligation for the issuer. This means that if dividends are not paid in one period, shareholders do not have a claim to those unpaid dividends in future periods. Additionally, preferred stock that has dividends that can change based on the issuer's credit status is excluded from this definition.
Table of content
Legal Use & context
This term is primarily used in corporate finance and securities law. Noncumulative perpetual preferred stock is often relevant in discussions about capital structure and investment strategies. It may involve legal documents such as stock purchase agreements or corporate bylaws. Users can manage related forms and documents with tools like US Legal Forms, which offers templates drafted by legal professionals.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A corporation issues noncumulative perpetual preferred stock to raise capital. The company decides not to pay dividends in a particular year due to financial constraints. Shareholders will not receive those dividends in the future.
Example 2: A bank issues noncumulative perpetual preferred stock as part of its capital strategy. If the bank waives dividend payments, shareholders have no right to claim those dividends later. (hypothetical example)
Comparison with related terms
Term
Definition
Key Difference
Cumulative Preferred Stock
Preferred stock that accumulates unpaid dividends.
Unpaid dividends accumulate and must be paid in the future.
Common Stock
Equity ownership in a company with voting rights.
Common stockholders have a residual claim on assets after debts and preferred stockholders are paid.
Common misunderstandings
What to do if this term applies to you
If you are considering investing in noncumulative perpetual preferred stock, ensure you understand the risks involved, especially regarding dividend payments. You can explore US Legal Forms for templates related to stock agreements and corporate bylaws. If you have specific legal questions, consulting a legal professional is advisable.
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