We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
What is Perpetual Preferred Stock? A Comprehensive Legal Overview
Definition & Meaning
Perpetual preferred stock is a type of equity security that does not have a maturity date. Unlike other forms of preferred stock, it cannot be redeemed at the option of the holder, meaning investors cannot demand their money back at any point. This stock may include provisions for automatic conversion into common stock at a set date. However, it does not include stocks that have features that could force the issuer to redeem them, such as increasing interest rates.
Table of content
Legal Use & context
Perpetual preferred stock is primarily used in corporate finance and investment contexts. It is relevant in areas such as securities law and corporate governance. Legal practitioners may encounter this term when dealing with equity financing, investment agreements, or corporate restructuring. Users can manage related forms or procedures through resources like US Legal Forms, which provide templates drafted by experienced attorneys.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A company issues perpetual preferred stock to raise capital without the obligation of repaying investors at a specific date. This allows the company to maintain cash flow while providing investors with dividends.
Example 2: A corporation may have a provision in its perpetual preferred stock agreement that allows for automatic conversion into common stock after ten years, providing investors with potential equity growth. (hypothetical example)
Comparison with related terms
Term
Definition
Key Differences
Preferred Stock
A class of ownership in a corporation that has a higher claim on assets and earnings than common stock.
Preferred stock may have a maturity date and can often be redeemed by the holder.
Common Stock
Equity ownership in a company that typically comes with voting rights.
Common stock does not guarantee dividends and is lower in priority for asset claims than preferred stock.
Common misunderstandings
What to do if this term applies to you
If you are considering investing in perpetual preferred stock or if you are a company looking to issue it, it is crucial to understand the terms and implications involved. You can explore US Legal Forms for templates that can help you draft agreements or understand your rights and obligations. If the situation is complex, consulting a legal professional is advisable to ensure compliance and protect your interests.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.
The main advantage is that it provides a steady stream of dividends without the obligation of repayment, which can be beneficial for both companies and investors.
Yes, it may include provisions for automatic conversion into common stock at a specified date.
Like any investment, it carries risks, including the potential for lower liquidity compared to other securities.