Preferred Stock Legal Meaning and Definition

Here is a simplified definition of the legal term Preferred Stock.

Preferred Stock (noun)

A class of ownership in a corporation that has a higher claim on the corporation's assets and earnings than common stock. Preferred shareholders receive dividends before common shareholders and have priority in the event that a corporation goes bankrupt and is liquidated. The dividend rate for preferred stock is usually fixed and not dependent on the corporaton's profits. Additionally, holders of preferred stock typically don't have voting rights within the corporation. These types of shares are generally associated with reduced risk.