Problem: Why would a company raise funds with preferred stock instead of debt?
One of the reasons they are issued with preferences is because they also have restrictions compared to common shares. The restrictions commonly include:
- no voting rights or say in the makeup of the board of directors
- no requirement for any payment of dividends
- mandatory call features
Preferred stock is a way to raise money without giving up control and ownership in the company. In a lot of ways preferred stock is more like debt than equity.