The challenging concept to understand is convertible preferred stock. After extensive research and reading widely, I have understood the concept of the convertible preferred stock as the type of the stock with conversion option from preferred into a certain number of common shares on a specific date. In this regard, it is considered a hybrid type of stock security as it possesses the features of debt and equity. As a debt, it possesses a fixed guaranteed dividend, and as equity, it is the ability of conversion into the common stock (Ozyasar, 2020). In terms of the company ownership feature's ranking, convertible preferred stock comes after the common stock. The stakeholders desire to convert the preferred stock, he or she presents or issue the company with a notice of intention and amount of the common shares to be converted in a given date. Therefore, the convertibility of the preferred stock depends on stakeholders' interest in converting preferred stock into the common share.
The article by Ozyasar (2020) is one of the resourceful supplemental material that has helped in better understanding the concept of convertible preferred stock. More so, Upcounsel (2020) website also helped in understanding the concept deeply. The two resources provide a greater overview of the convertible preferred stock and exploring various concepts such as advantages and disadvantages to the investors or startup. For instance, according to Upcounsel (2020), investors tend to enjoy the stability of preferred share, and like a bond whereby when the firm is doing well financially, then conversion of preferred stock to the common stock is done, taking advantage of the stock appreciation. However, the disadvantage of the convertible preferred stock is that investors may receive reduced or lower rates of the dividend compared to other stock holders. The compensation in terms of the dividend rate tends to be lower as they have the stock's valuable conversion ability. Therefore, the resources help in obtaining essential informative concepts concerning the convertible stock.
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References
Ozyasar, H. (2020). The Differences Between Preferred Stock and Convertible Preferred Stock. Retrieved 2 October 2020, from https://finance.zacks.com/differences-between-preferred-stock-convertible-preferred-stock-7160.html
Upcounsel (2020). Convertible Preferred Stock: Everything You Need to Know. Retrieved 2 October 2020, from https://www.upcounsel.com/convertible-preferred-stock#:~:text=Convertible%20Preferred%20Stock%3F-,Convertible%20preferred%20stock%20is%20a%20type%20of%20preferred%20stock%20that,shares%20after%20a%20specified%20date .
