Participating Preferred Stock Law and Legal Definition

Participating preferred stock is a capital stock which provides a specific dividend that is paid before any dividends are paid to common stock holders. This type of share holders can also share with the common shareholders in any additional distributions of earnings.The additional dividend paid to preferred shareholders is commonly structured to be paid only if the amount of dividends that common shareholders receive exceeds a specified per-share amount. In case of liquidation, participating preferred shareholders can also have the right to receive the stock's purchasing price back as well as a pro-rata share of any remaining proceeds that the common shareholders receive.