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A business would issue preferred stock shares to people as a means of raising funds for business operations. This happens after a business has issued regular common stocks and bonds. However, businesses typically wait until after they have issued common stocks and bonds as those are not as expensive to issue as the preferred stock is. A company has the ability to suspend dividends on a preferred stock. This does not happen too often, but there is always a chance. In fact, a company can do this and not be at risk of being sued for default. This is different from bonds where a company would default if it is unable to pay off the interest on those investments.
A company can also have tax benefits from preferred stock. A company will not have to pay taxes on most of the funds it receives for that stock. It is easier for a business to increase the total amount of money it will not have to pay back because it does not take much time to get preferred stock issued to the market.
Interest will be paid by the company to investors based on how the stock performs. Fortunately for the business that interest will not be subjected to taxes. Therefore, a sizable part of the tax burden is relieved altogether. Be advised that you would not benefit from those tax advantages that the company issuing the stock would have.
