Startup Terms Glossary
What is Participating Preferred Stock?
Participating Preferred Stock refers to shares that are guaranteed to pay standard dividends plus a pre-determined extra dividend based on an agreed upon factor. This type of stock is attractive to shareholders because it has the potential to turn a larger profit than some other types of stock. However, participating preferred stock is rare. It most frequently is issued following an extreme event such as a hostile takeover.
Participating Preferred Stock Examples
Some key points participating preferred stock include:
- Example 1. Ranks above common stock but below debt during liquidation
- Example 2. Often a priority during liquidation events
- Example 3. Pays preferred dividends plus additional dividends
This page discusses participating preferred stock.
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I am a lawyer who helps small businesses, nonprofits, and startups with a wide variety of agreements, corporate formation, and corporate governance. I earned my BA from Tulane University and my JD from the University of Chicago Law School. Before starting my own practice, I worked at an international law firm in New York City. Outside of work, I am on the board of the nonprofit Seattle REconomy (which runs the NE Seattle and Shoreline tool libraries) and I enjoy gardening, baking bread, and outdoor activities with my spouse and two dogs.
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Drew is an entrepreneurial business attorney with over twenty years of corporate, compliance and litigation experience. Drew currently has his own firm where he focuses on providing outsourced general counsel and compliance services (including mergers & acquisitions, collections, capital raising, real estate, business litigation, commercial contracts and employment matters). Drew has deep experience counseling clients in healthcare, medical device, pharmaceuticals, information technology, manufacturing, and services.
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Daniel is an experienced corporate attorney and works closely with corporations, privately held companies, high-net worth individuals, family offices, start-ups and entrepreneurs. Daniel graduated from the Gonzaga University School of Law and is licensed to practice law in Illinois.
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