Definition
The term contingent voting power refers to a right granted to holders of preferred stock when the issuer fails to meet one of its obligations. Contingent voting power provides holders of preferred stock with an additional security feature.
Explanation
Typically, voting rights are offered exclusively to holders of common stock, and holders of preferred shares do not have this right unless contingent voting power is offered to these investors. Issuers will include this feature to make their preferred stock more attractive, since it provides some protection to the holders of the security.
Voting rights are bestowed upon a holder only under certain conditions, typically when the issuer does not fulfill one of their obligations outlined in the shareholder agreement. The most common scenario involves the payment of dividends. For example, if a company fails to provide preferred shareholders with a scheduled dividend, they may have contingent voting power. In doing so, these shareholders may be able to unseat the company's existing board of directors, replacing them with members that will reinstate their dividend.
Related Terms
The term baby bond refers to indentures and other fixed income securities with a par value that is less than $1,000. The term baby bond can also refer to a series of bonds issued by government entities during the first and second world wars.
Moneyzine EditorJanuary 8th, 2024
The term first-preferred stock refers to a security that has seniority over all other forms of equity issued by a corporation. First-preferred stock receives preferential treatment in terms of dividend payments as well as assets in the event of liquidation.Moneyzine EditorJanuary 18th, 2024
The term monthly income preferred stock refers to a security that possesses the features of both preferred stock and bonds. Monthly income preferred stock is considered a hybrid security that dominated the market at one time due to a tax shelter loophole that has since been closed.Moneyzine EditorFebruary 8th, 2024- The term private investments in public entities refers to the selling of publicly-traded securities to private investors. Private investments in public entities typically involve the sale of convertible bonds, common or preferred stock.Moneyzine EditorSeptember 21st, 2023
