Preferred Shares for Dummies
noun
What does Preferred Shares really mean?
Preferred shares are a type of stock that a company can issue to its investors. So, let's say you invest in a company by buying its shares, which basically means you become a part-owner of that company. Now, regular shares, also called common shares, are what most people are familiar with. However, preferred shares are a little different. When you own preferred shares, it means you have a special kind of ownership in the company.
So, what makes preferred shares special? Well, the word "preferred" itself gives us a clue. It means that these shares have some advantages or preferences compared to regular common shares. One advantage is that if the company that issued the preferred shares goes bankrupt or has financial difficulties, the people who own preferred shares have a better chance of getting their investment back than those who own common shares.
Let me explain this with a metaphor. Imagine you are at a party, and you have two types of friends – your regular friends and your preferred friends. If you suddenly find yourself short on snacks or drinks, who would you prioritize giving them to? Most likely, your preferred friends, right? Because they are more important or have a higher priority to you. Well, the same concept applies to preferred shares.
But wait, there's more. Another advantage of preferred shares is that they often come with fixed dividends, which are regular payments that companies give to their shareholders. So, if you own preferred shares, you may receive a regular stream of income from the company, like a monthly allowance, but in the form of money. These dividends are usually predetermined, meaning the company agrees to pay a fixed amount to the preferred shareholders periodically.
Think of it this way – imagine you have a relative who gives you a weekly allowance of $10. You can count on that money every week, right? It's like having a fixed income. And that's similar to how owning preferred shares can give you a steady income from the company.
Now, preferred shares can have different features or characteristics, depending on the company and the type of preferred shares. Some preferred shares may even have the option to be converted into common shares, which means they can be changed into regular shares if the owner wants to. It's like having the option to switch seats at the party from the "preferred" section to the "common" section.
So, to sum it all up: Preferred shares are a special kind of ownership in a company that comes with advantages. They give investors a better chance of getting their investment back if the company faces financial difficulties or goes bankrupt. They also often come with fixed dividends, providing shareholders with a steady stream of income. Think of them as the "preferred friends" at the party who get priority treatment and maybe get extra snacks or drinks. And just like at a party, the 'preferred' label comes with additional features that can make them even more attractive to investors.
Revised and Fact checked by Robert Williams on 2023-10-28 15:53:42
Preferred Shares In a sentece
Learn how to use Preferred Shares inside a sentece
- You know how when you play a game with your friends, sometimes you have a special advantage or power that you really like? That's kind of like having preferred shares in a company, where certain people have special advantages or benefits.
- Imagine you and your friends own a lemonade stand together. You decide that you will each put in some money to start the business, but you want to have a little extra control over the decision-making. So, you might get preferred shares, which give you more say in important decisions about the lemonade stand.
- Sometimes, people want to invest their money in a company because they believe in its success. They might buy preferred shares, which means they become sort of like silent partners. They get a share of the company's profit without having too much involvement in running the company.
- Imagine you have a favourite toy that you never want to share with anyone. It's really important to you, so you keep it hidden away. Preferred shares are a bit like that toy. Some people have certain shares in a company that are more important to them and they don't want to sell or give them away easily.
- Let's say a big company wants to raise money to expand their business but doesn't want to borrow money from the bank. Instead, they might sell preferred shares to investors. These investors then become part-owners of the company and can make money through dividends, which are like rewards for being an owner.
Preferred Shares Synonyms
Words that can be interchanged for the original word in the same context.
Preferred Shares Hypernyms
Words that are more generic than the original word.
Preferred Shares Hyponyms
Words that are more specific than the original word.