A preferred stock is a type of stock that carries certain rights distinguishing them from holders of common stocks. Preferred stocks are a component of share capital that possess specific features not available to common shares, including specific rights and properties of both an equity and a debt instrument.

Preferred stocks usually provide higher dividends, and a better claim (priority) to an entity’s assets in the event of liquidation. Similar to debt instruments (e.g., bonds),  preferred stocks pay interest. However, holders of preferred stock generally do not enjoy voting rights. This setback is made up by the ability to have their claims discharged before the claims of common stockholders at the time of liquidation.

The main types of preferred stocks include:

• Convertible preferred stock.
• Non-convertible preferred stock (straight preferred stock).
• Cumulative preferred stock.
• Redeemable preferred stock (callable preferred stock).
• Non-redeemable preferred stock.
• Participating preferred stock.