Preferred Stock

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Preferred Stock

Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders.

Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. The earnings of a corporation are applied to this payment before common stockholders receive dividends. If corporate earnings are insufficient for the fixed annual dividend, the preferred stock will absorb the total amount of earnings, and the common stockholders will be precluded from receiving a dividend. When corporate income exceeds the amount that is needed to pay preferred stockholders, the remainder is generally paid to common stockholders. In special situations, the remainder may be distributed pro rata to both classes of stock, in which case the preferred stock is said to "participate" with the common stock.

Preferred stock can be cumulative or noncumulative. If it is cumulative and if the fixed dividend remains unpaid, it becomes a debit upon the surplus earnings of succeeding years. Accumulated dividends must be paid in full before common stockholders can receive dividends. When preferred stock is noncumulative, its preference is extinguished by the failure of the corporation to have sufficient earnings to pay the fixed dividend in a given year.

preferred stock

n. a class of shares of stock in a corporation which gives the holders priority in payment of dividends (and distribution of assets in case of dissolution of the corporation) over owners of "common" stock at a fixed rate. While the assurance of first chance at profits is a psychological and real benefit, preferred stock shareholders do not participate in higher dividends if the corporation makes large profits, and usually cannot vote for directors. (See: corporation, stock, common stock)

References in periodicals archive ?
The settlement agreement required that the Company (i) convene a shareholders' meeting before May 31, 2000; (ii) take steps to eliminate the supervoting class of stock which has for years insulated current management; and (iii) pay $2,000,000 to the plaintiffs to settle the claims (fortunately, this payment was covered by the Company's insurance carrier).
Other items to be voted on at the special general meeting that relate to the possible Hong Kong listing include, among others, (i) a pro rata bonus issuance of shares to all shareholders for the purposes of reducing the price of such shares into a range that will make the shares more marketable in Hong Kong in the event of a Hong Kong listing, (ii) elimination of the Company's supervoting class of shares in the event of a Hong Kong listing, (iii) adoption of new bye-laws to conform to HKSE listing rules in the event of a Hong Kong listing and (iv) an increase in authorized share capital.
MeriStar seeks to authorize "declawed" preferred stock--preferred shares that will not be used for anti-takeover purposes and will not carry supervoting rights.
The Company had requested such holders to convert in order to eliminate the supervoting rights attendant to the Class B Common Stock.
The purpose of the request is to eliminate the supervoting rights attendant to the Class B Common Stock.
The Toy Biz litigation against Marvel had resulted in a March 30, 1998 judgment by the District Court declaring that the supervoting rights associated with the class B common stock of Toy Biz owned by Marvel terminated on June 20, 1997 when Carl C.