Deferred Stock

Deferred stock is one or more shares of stock that does not pay dividends until a specified date or event occurs, such as a company reaching certain profitability levels. Deferred stock is typically held in a lock deferred stock compensation account until the expiration date. Shareholders of deferred stock do not have any rights to the assets of a bankrupt corporation until all preferred and common stockholders have been paid. Usually deferred stock is issued to company founders and certain members of management to restrict their access to dividends until dividends have been distributed to all other shareholders. Deferred stock is, therefore, subordinate to all other classes of stock. Today, deferred stock is not a common practice as the deferred stock payouts can be considerable despite the postponement in distribution. Holders of deferred stock are usually granted voting rights only after the expiration date has passed. Many corporations allow the owner of deferred stock to elect a date for distribution of deferred stock shares, subject to certain parameters set forth by the governing board.