Final answer:
The holder of preferred stock has priority in asset distribution during a company's liquidation, before common shareholders but after debt holders. Preferred stock comes with a fixed dividend, and decision-making in a company with many shareholders is typically handled by the board of directors.
Step-by-step explanation:
The holder of preferred stock has a preference in the distribution of a company's assets in the event of liquidation. This means that if the company is dissolved, preferred shareholders are paid before common shareholders, but after debt holders and creditors. The specific rights and preferences associated with preferred stock, including the priority of asset distribution, are typically outlined in the company's charter documents.
Preferred stock can be considered a financial tool that blends features of both equity and debt. It often comes with a fixed dividend, similar to the regular interest payments of a bond, which the company is committed to pay to preferred shareholders. However, preferred dividends can sometimes be deferred if the company encounters financial difficulties. In the case of an IPO, the company utilizes the generated capital, including from preferred stock, for expansion or to repay early-stage investors like venture capitalists.
Decision-making in a company with numerous shareholders often falls to a group of directors elected by the shareholders. These directors handle the strategic decisions of the company, including the issuance of stock, dividend policies, and other significant matters.