Legal Definitions - Participating preferred stock

Participating preferred stock is a type of stock that gives the holder the right to be paid first, before common stockholders, in the event of a dividend or liquidation payout. In addition, the holder also has the right to participate along with the common stockholders in receiving payment on the remaining payout.

For example, let's say a company has both common stock and participating preferred stock. If the company declares a dividend of $1 per share, the holders of participating preferred stock will receive their dividend first, before any payments are made to the common stockholders. If there is any money left over after the participating preferred stockholders have been paid, then the common stockholders will receive their dividend.

Another example is if the company is liquidated, the holders of participating preferred stock will be paid first from the proceeds of the liquidation. If there is any money left over after the participating preferred stockholders have been paid, then the common stockholders will receive their share of the remaining payout.

These examples illustrate how participating preferred stock gives the holder priority over common stockholders in receiving dividends or payouts in the event of a liquidation.