Preferred stock is a class of equity ownership that has a more senior claim on the earnings and assets of a business than common stock. In the event of liquidation, the holders of preferred stock must be paid off before common stock holders, but after secured debt holders. Preferred stock also pays a dividend; this payment is usually cumulative, so any delayed prior payments must also be paid before distributions can be made to the holders of common stock.
Preferred stock holders can have a broad range of voting rights, ranging from none to having control over the eventual disposition of the entity. Preferred stock may be sold when a company is unable to sell common shares at a reasonable price.
Preferred stock is also known as preference shares.