Preferred stockholders have a higher claim on assets under what circumstance?

Preferred stockholders have a higher claim on assets under what circumstance?

• A. Upon company liquidation
• B. During regular dividend payments
• C. When selling their shares
• D. In mergers and acquisitions

Answer: (A)

Preferred stockholders enjoy a higher claim on a company's assets specifically upon liquidation. This means that in the event a company goes bankrupt and its assets are sold off to pay debts, preferred shareholders are prioritized over common shareholders when it comes time to distribute whatever assets remain. Common stockholders only receive payouts after all superior claims, including those of creditors and preferred stockholders, have been settled. In contrast, during regular dividend payments, preferred shareholders typically receive fixed dividends before common shareholders, but this does not pertain to claims on assets. When selling shares, both preferred and common shareholders operate under market conditions that can fluctuate, offering no guarantees of asset claims. Regarding mergers and acquisitions, preferred stockholders might have rights, but their standing compared to common stockholders depends on the specific terms of the deal and does not universally grant them a higher claim. Therefore, the most definitive circumstance where preferred stockholders have better entitlement to assets is indeed during company liquidation.

Preferred stockholders enjoy a higher claim on a company's assets specifically upon liquidation. This means that in the event a company goes bankrupt and its assets are sold off to pay debts, preferred shareholders are prioritized over common shareholders when it comes time to distribute whatever assets remain. Common stockholders only receive payouts after all superior claims, including those of creditors and preferred stockholders, have been settled.

In contrast, during regular dividend payments, preferred shareholders typically receive fixed dividends before common shareholders, but this does not pertain to claims on assets. When selling shares, both preferred and common shareholders operate under market conditions that can fluctuate, offering no guarantees of asset claims. Regarding mergers and acquisitions, preferred stockholders might have rights, but their standing compared to common stockholders depends on the specific terms of the deal and does not universally grant them a higher claim. Therefore, the most definitive circumstance where preferred stockholders have better entitlement to assets is indeed during company liquidation.