What types of preferred shares provide rights to a share in the company's net profits above the specified dividend rate?

Participating preferred shares are designed to offer shareholders the opportunity to benefit from the company’s financial success beyond the specified fixed dividend rate. This structure allows the holders of participating preferred shares to receive additional dividends in the form of a share in net profits after all other dividends (such as fixed dividends to common and preferred shares) have been paid.

In essence, if the company performs particularly well and generates profits that exceed expectations, holders of participating preferred shares can participate in the additional profits, making these shares more attractive, particularly in growing companies. This participation feature aligns the interests of preferred shareholders with the overall profitability of the company, whereas other types of preferred shares may not allow such an advantage.

In contrast, non-participating preferred shares provide dividends only at the stated rate and do not offer any additional profit-sharing opportunities. Convertible preferred shares allow holders to convert their preferred shares into common shares under specific conditions, but they do not inherently include rights to additional profits. Redeemable preferred shares can be repurchased by the issuing company at a specified price, but are similarly limited in their dividend structure compared to participating shares.