Junior Stock

What is Junior stock?

Junior Stock is just the common stock a firm issues. But it is referred to as junior stock in relation to cases where ranking is necessary during a firm liquidation or when a firm is applying for bankruptcy. Hence, the holders of these securities are paid their claim last as compared to senior stocks such as preferred stockholders who are given the first priority.

Why is Junior Stock necessary?

Junior Stock is necessary so as to avoid risking the third parties (external financiers such as preference shareholders and bondholders) from suffering from financial loss especially when the funds to be used to pay the claims are not good enough.