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I'm confused about how common and preferred shares coexist.
Is a single preferred share always equal to the same amount of the company as a single common share, or does a preferred share somehow entitle the holder to more (or perhaps different parts?) of the company ?
Or is a preferred share just a common share that jumps the queue in the event of a liquidation?
standard ratio of preferred shares to common shares in a company?
There is no standard ratio, a company may choose to issue preferred shares if it needs to raise capital fast and can't get more debt
preferred share just a common share that jumps the queue in the event of a liquidation?
Preferred shares have a guarantee of dividends, generally carry no voting rights and are higher in claims in the event of liquidation. Investopedia has a good description on this.
A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.
Preferred stock combines features of debt, in that it pays fixed dividends, and equity, in that it has the potential to appreciate in price.
Edit:
The prospectus gives out the details. Generally Preferred stocks don't own the percentage of company in normal sense. These are more like Corporate Bonds in perpetuity; these can be called back and paid the value of purchase plus accrued interest [as laid out in prospectus] or can be converted into common stock [again laid out in prospectus]
Yes, a preferred share may entitle the holder to different parts of the company (see types below).
A Pfd stock is considered a hybrid security because it has similarities to both common stock and bonds. It is called "preferred" because it receives preferential dividend treatment. If the issuer doesn't pay the full amount of Pfd dividends in the prospectus, then it can't pay common shareholders any dividend. It also stands in front of owners of common stock in the event of liquidation though behind bondholders. This isn't likely to matter because in liquidation the odds are that everyone gets nothing.
Like common stock, Pfds represent an ownership stake in the company and therefore they are considered equity on the company's balance sheet. They trade on the stock exchanges but they do not have voting rights.
There are different types of Pfd stocks.
The most common type is a fixed rate cumulative redeemable Pfd stock.
Non cumulative are similar but the dividend is suspended, missed payment(s) do not have to be made up to the owner.
In a Trust Pfd, a company puts its bonds in a trust and creates Pfd shares from it. This accounting gimmick allows the company to deduct interest on the bonds while being treated as equity and making the company appear to have less debt.
Third Party Trust Pfds involve an an entity other than the issuer who buys company bonds and creates a Pfd stock from them.
Lastly, there are a few convertible Pfd stocks (U.S.) which have complicated rules laid out in the prospectus governing conversion into common shares. Prior to conversion, they do not benefit from any increase in common stock dividends but they provide the ability to participate in share price appreciation.
