Non-participating shares definition
/What are Non-Participating Shares?
Non-participating shares do not provide their holders with a share of the earnings of the issuing entity. Instead, these shares typically provide a fixed rate of return in the form of a dividend, and so are designated as preferred shares.
Advantages of Non-Participating Shares
Non-participating shares are less risky than common stock, since holders will still earn a return even when the issuing business does not earn a profit. Also, this dividend is paid before common shareholders are paid a dividend; this preference further reduces the risk to the holder.
Disadvantages of Non-Participating Shares
In exchange for the reduced level of risk, owners of non-participating shares do not participate in the earnings of the issuer, which caps their maximum return. This may represent a substantial amount of lost income if the business turns out to be highly profitable.