Preferred share – preferred stock

Equity Term

A preferred share is a type of company stock that has valuable extra rights and features compared with common shares. Venture capital firms and angel investors typically purchase preferred shares from companies. They are sometimes called convertible preferred because under certain conditions they convert to common shares. In practice it is often shortened to just “preferred.”

The extra rights and features make preferred shares senior to common shares, but they are less senior than most forms of debt. This basically means investors get paid first when the company is sold, after debt is repaid. The liquidation preference term specifies exactly how much and under what conditions investors get paid first.

To see the extra rights and features download sample term sheets from the National Venture Capital Association or the Angel Capital Association.

 

Don Gooding

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