What are preferred shares

Preferred shares are a special kind of equity securities, which, unlike ordinary shares, have special rights, but also have a number of specific restrictions.

Preferred Stock Overview

Fixed income is accrued on preferred shares, in contrast to ordinary shares, the dividends of which depend on the profit of the joint-stock company. However, dividends are not paid if the company incurred losses during the reporting period. Holders of preferred shares are also entitled to receive part of the property of the joint-stock company in the event of its liquidation before it is divided between other owners. In addition, these shareholders may have additional rights specified in the documents of the company. For example, they may, under certain conditions, convert their preferred shares into ordinary shares.

However, the rights of the owner of preferred shares to participate in the management of the company may have significant restrictions. As a rule, such shareholders organize an independent group, which has the right to veto certain decisions of the company's management.

The rights and restrictions of preferred shares may differ significantly from one another in different countries and companies, as they are established by the national legislation and statutory documents of the company. In the Russian Federation, the nominal value of preferred shares should not exceed 25% of the authorized capital of the joint-stock company. Now on Russian exchanges are trading on preferred shares of such joint stock companies as Sberbank, Lukoil, Rostelecom, AvtoVAZ, Surgutneftegaz, Tatneft and others.