Final answer:
Participating preferred shares have rights to a share in the company's net profits over and above the specified dividend rate.
Step-by-step explanation:
Preferred shares that have rights to a share in the company's net profits over and above the specified dividend rate are called participating preferred shares.
Participating preferred shares are entitlements that allow shareholders to receive additional dividends if the company's profits exceed a certain threshold. This means that they receive both the specified fixed dividend rate and a share of the remaining profits.
For example, if a company has participating preferred shares with a dividend rate of 5% and the net profits are $1 million, the shareholders will receive a 5% dividend ($50,000) plus a share of the remaining profits, depending on the terms of the shares.