The owner of preferred stock:

Question

Quizplus · Accepted Answer

The owner of preferred stock is entitled to a distribution of income prior to the common shareholders. This means that when the company distributes profits, the owners of preferred stocks get paid first before the owners of common stocks receive their share.

Answer: D
 If the preferred stock is non-cumulative preferred, the owners have the right to collect payment on any unpaid dividends. This means that if the company skipped paying dividends in one year, the owners of non-cumulative preferred stocks can still collect the unpaid dividends in the future if the company starts distributing profits again.

Option A and B are incorrect because the owner of preferred stock does not have the right to declare the company bankrupt or veto the outcome of an election held by the common shareholders.

Option E is incorrect because it is not true that receiving tax-free dividends applies only to individuals who own more than 20% of the outstanding preferred shares.

The Owner of Preferred Stock