Final answer:
A preferred shareholder's right to have their stock repurchased for cash by the corporation is known as a redemption right. This right is beneficial as it offers a secure exit strategy to the shareholder and helps the corporation raise or borrow money for expansion without increasing debt.
Step-by-step explanation:
The right of a preferred shareholder to have her stock repurchased by the corporation for cash is referred to as a redemption right. Preferred shares often come with a set of rights that make them appealing to investors. One such right is the redemption right, which allows the shareholder to compel the company to repurchase the shares at set conditions, often laid out in the terms of the share offering.
This right can provide a preferred shareholder with an exit strategy, ensuring that their investment can be converted back into cash if desired.
This mechanism is one of the advantages of investing in preferred shares. Since shareholders' liability is limited to the amount they have invested, the redemption right offers a degree of financial security without exposing shareholders to further financial obligations.
Corporations favor issuing preferred shares not only because they provide a way to raise or borrow money but also because they can offer a solution to finance company growth without the need to take on additional debt.