Usage
Preferred stocks offer a company an alternative form of financing; in most cases, a company can defer dividends by going into arrears with little penalty or risk to its credit rating. With traditional debt, payments are required; a missed payment would put the company in default.
Occasionally companies use preferred shares as means of preventing hostile takeovers, creating preferred shares with a poison pill (or forced-exchange or conversion features) which are exercised upon a change in control. Some corporations contain provisions in their charters authorizing the issuance of preferred stock whose terms and conditions may be determined by the board of directors when issued. These "blank checks" are often used as a takeover defense; they may be assigned very high liquidation value (which must be redeemed in the event of a change of control), or may have great super-voting powers.
When a corporation goes bankrupt, there may be enough money to repay holders of preferred issues known as "senior" but not enough money for "junior" issues. Therefore, when preferred shares are first issued their governing document may contain protective provisions preventing the issuance of new preferred shares with a senior claim. Individual series of preferred shares may have a senior, pari-passu (equal), or junior relationship with other series issued by the same corporation.
Read more about this topic: Preferred Stock
Famous quotes containing the word usage:
“...Often the accurate answer to a usage question begins, “It depends.” And what it depends on most often is where you are, who you are, who your listeners or readers are, and what your purpose in speaking or writing is.”
—Kenneth G. Wilson (b. 1923)
“Girls who put out are tramps. Girls who don’t are ladies. This is, however, a rather archaic usage of the word. Should one of you boys happen upon a girl who doesn’t put out, do not jump to the conclusion that you have found a lady. What you have probably found is a lesbian.”
—Fran Lebowitz (b. 1951)
“Pythagoras, Locke, Socrates—but pages
Might be filled up, as vainly as before,
With the sad usage of all sorts of sages,
Who in his life-time, each was deemed a bore!
The loftiest minds outrun their tardy ages.”
—George Gordon Noel Byron (1788–1824)