WHAT IS “CONVERTIBLE PREFERRED STOCK”?
Convertible preferred stock is a type of preferred stock that has the option of being converted into common shares issued by the same company. The terms and conditions that apply to the stock normally set the conditions that must apply before the conversion can take place. Generally, the terms outlined at the time of purchase also define the ratio of conversion from the convertible preferred stock to shares of common stock. Convertible preferred stock is one of the less commonly employed approaches of issuing shares of stock. Usually there are some underlying factors that preclude the issuing of straight common stock. One scenario that often applies to the issuing of convertible preferred stock is that the company is currently considered to be in a high risk situation, and needs to raise capital quickly. Within this scenario, the company finds that raising money through equity or through the accumulation of temporary debt will not adequately address the current circumstances. In the ac
