Series A preferred stock is a classification of a stock that gives the holder specific rights that are separate from those of a common stock. When a company issues shares of preferred stock, it does so in series. For example, Series A preferred stock would be the first preferred stock issued, Series B would be the second and so on. Each round of preferred stock has its own set of holding rights, which may be completely different than that the series before and after it.
Preferred stock has one thing in common with common stock; the holder owns a portion of the company that issued the stock. With the exception of that one factor, the two stocks may have nothing in common. When a company issues preferred stock, it outlines exactly what the holder’s rights are. These rights may be exactly the same as a common stock, or they may be totally different.
A company will issue preferred stock in groups. Series A preferred stock is the first group issued and often has some of the most favorable rights. It is not uncommon for a private company to issue a Series A preferred stock as a first step towards becoming publicly traded. This initial group sets up an elite faction among the future shareholders.
The actual rights on a preferred stock vary greatly, but there are two factors that are quite common. First, a preferred stock does not allow a vote like a common stock. This prevents a company from stacking company-wide voting and violating the laws of the Securities Exchange Commission. Second, preferred stock holders get first dibs on any dividends paid out by the company. These are typically played out by stock group: Series A preferred stock holders are first, followed by B holders, and so on until common stock holders are paid last.
While nonvoting and preferred dividends are most common, there are a handful of other factors that are likely in most preferred stock. In most cases, a preferred stock may be transferred into a common stock on a one-to-one basis. Once it is transformed, it is like every other common stock and the holder has no additional rights. A preferred stock may be called in at any time by the issuer; essentially, the holder may be required to sell the stock back at any time. Lastly, in addition to first share of dividends, a preferred stock holder gets fist access to assets should the company fail.
