What is preferred stock?

Preferred stock is a class of equity that ranks senior to common stock. Preferred holders are entitled to receive defined dividends or liquidation amounts before common holders. Preferred stock issued in venture financings typically converts to common stock on an IPO or qualified sale.

What rights does preferred stock have?

Standard rights include: a liquidation preference (typically 1x non-participating), anti-dilution protection in down rounds (typically broad-based weighted average), protective voting rights on defined matters (changing the certificate, issuing senior securities), and the right to convert to common at the holder's option. Series-specific rights are set by the certificate of designations or articles of amendment that creates the series.

Series A is the first round of priced equity financing in a startup, where institutional investors purchase a new class of preferred stock. The series letter is sequential: Series A, Series B, Series C as the corporation raises more capital. Each series typically has its own terms but with similar overall structure.

Cap table & equity

Preferred stock / preferred shares

US: preferred stock. Canada/UK: preferred shares. Series A, B, C designations.

Definition

Preferred stock (US) or preferred shares (Canada/UK) is a senior class of equity carrying priority over common in dividends and liquidation. Typically issued to institutional investors in priced rounds, with series designations (Series A, B, C) and a defined set of preferences.

Same artifact, different names

United States	Preferred stock (DGCL § 151; designated by Certificate of Designations)
Canada	Preferred shares (CBCA s. 24-27)
United Kingdom	Preference shares (CA 2006 s. 540)

The preference stack

Preferred stock's main economic feature is its position in the liquidation stack. In a sale or wind-up, the proceeds flow in a defined order:

Secured creditors (banks, lenders)
Unsecured creditors (suppliers, tax authorities)
Preferred stock liquidation preferences, in inverse order of issuance (latest series first, typically)
Common stock, sharing any remaining proceeds pro rata

The standard liquidation preference is 1x non-participating: each preferred share receives its original purchase price back before common gets anything, and then converts to common if the conversion would produce a better outcome.

Standard preferred rights

A typical venture-financing preferred share carries:

Liquidation preference (usually 1x non-participating)
Anti-dilution protection in down rounds (usually broad-based weighted average)
Conversion right to common at the holder's election, and automatic conversion on a qualified IPO
Protective provisions: matters requiring the preferred class's consent (changing the certificate, issuing senior securities, M&A above a threshold)
Board representation, often through a series-elected director seat
Pre-emptive rights on future issuances
Information rights (financial statements, board materials)
Registration rights for an eventual IPO

How preferred is created

Preferred stock is created by filing articles of amendment (Delaware: a certificate of designations) that authorizes a new series and sets out its rights. The filing happens immediately before the issuance, typically at the closing of a financing round. Each new series usually requires its own filing because its rights differ from prior series.

In Octelligence

Series A, B, C preferred, each with their own rights, tracked separately.

Octelligence supports unlimited share classes with class-specific rights, liquidation preferences, and conversion ratios. The cap table reflects the full preference stack, and scenario modeling shows what each class receives at any exit value.

See Cap Tables & Financing

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Multi-series preferred, modelled

Run priced rounds with the full preference stack in view.

Unlimited share classes, class-specific rights, and waterfall modeling for any exit scenario.

View pricing See how it works

Preferred stock / preferred shares

The preference stack

Standard preferred rights

How preferred is created

Related terms