What is the meaning of Convertible Preferred Stock?

Preferred shares differ from common shares in three main respects. First, unlike common shares, preferred shares generally have no voting rights in the company. Second, preferred shares have preference over common shares if in the unfortunate event that the company is forced to liquidate its assets. Third, and most important for seed capital investors, most preferred shares carry provisions for guaranteed rates of return paid to the preferred shareholders. Convertible preferred shares are preferred shares that are convertible, either at the option of the company or the shareholder, to common shares. Convertible preferred shares give a potential investor the comfort level of guaranteed income on their investment, along with the option to convert to common shares when the company becomes profitable.