Farm Credit Associations: What’s a Preferred Stock Vote?

Last Updated on September 5, 2025 by Hannah Seeley

Farm credit associations are a bedrock of support for rural communities and agriculture in the United States. While they operate as cooperatives, these institutions still need to maintain a strong financial position. One of the many tools a farm credit association can use is preferred stock, which helps raise funds.

While preferred stock plays a crucial role in raising capital, it’s not always well understood, especially when it comes to voting rights and financial decision-making. Consult this guide to learn what preferred stock is, how it differs from common stock, and how the preferred stock voting process works.

What Is Preferred Stock?

In a farm credit association, preferred stock is a type of equity that gives its holders the first claim to any dividends. People who hold common stock (also known as voting stock) receive dividend payments only after preferred stockholders get theirs.

Preferred stock often pays a fixed dividend, making it more predictable for investors. These dividends are paid out before any surplus is distributed to common stockholders. Common stock dividends, on the other hand, are not guaranteed and may vary year to year based on the association’s financial performance.

Common stock is typically issued to member-borrowers. These are the farmers, ranchers, and agricultural producers who use the association’s lending services. In fact, borrowers must purchase a minimum amount of common stock as a loan condition, typically the lesser of 2% of the loan or $1000, per Farm Credit regulations. In contrast, preferred stock is issued under specific regulatory guidelines and usually sold to outside investors or other farm credit associations to raise capital without giving up control.

While dividends aren’t guaranteed with common stock, it does come with voting rights, allowing member-borrowers to participate in governance decisions, such as electing board members. Preferred stockholders generally don’t have voting rights, meaning they can’t influence the cooperative’s direction or leadership.

It may sound like an added layer of complexity, but farm credit associations issue preferred stock for many reasons, including:

• Raising capital without diluting member control
• Strengthening regulatory capital ratios
• Providing stable, long-term funding for agricultural lending
• Avoiding debt
• Maintaining its cooperative structure

Put simply, offering preferred stock allows farm credit associations to fund their operations without compromising on their borrower-owned model.

How A Preferred Stock Vote Works

Most votes in a farm credit association are for common stock, not preferred stock. However, there are occasions when you may need to hold a vote for preferred stockholders. It’s uncommon, but organizations can follow this process to hold fair, transparent preferred stock votes.

Determine Eligibility

Most preferred stock issued by farm credit associations is non-voting by design. These shares primarily raise capital while preserving governance for borrower-members. However, the terms of the preferred stock agreement may allow voting in rare, specific circumstances, usually when changes directly affect preferred stockholder rights. In those cases, only preferred stockholders can participate in the vote, and only if your bylaws and the terms of the stock allow it.

Identify an Event Requiring A Vote

Preferred votes aren’t routine; they only happen when a significant change is proposed in your organization. This differs for every farm credit association, but you’ll likely need a preferred stock vote if you need to:

• Amend dividend terms
• Authorize new preferred shares, which would dilute the value of existing stakeholders’ shares
• Work through a merger, acquisition, or dissolution
• Make structural changes that will otherwise affect preferred stockholder rights

Notify Eligible Stockholders

If a vote is required, the farm credit association will issue a formal notice to preferred shareholders. This includes details on the proposed action, instructions on how to vote, and the timeline for voting. Voting may take place via mail, a secure online portal, or a hybrid format, depending on your bylaws and stock terms.

A clean voter database will make this step much simpler. At SBS, we not only help keep your voter data clean, but we also offer a full-service election management platform to streamline every step of the notification process. Whether your stakeholders prefer old-fashioned letter announcements, emails, or SMS, we create a communication plan tailored to your bylaws and voter preferences.

Hold the Vote and Verify Results

Preferred shareholders submit their votes, and the association then verifies, tallies, and certifies the results, often with assistance from a third-party election provider for transparency and compliance.

If managing a vote sounds overwhelming, tap the experts for a fully auditable and secure election. We offer fully managed voting services that handle everything from secure ballot collection to certified results reporting. Our experienced team coordinates the vote, ensuring safe and auditable results, as well as post-election workflow audits, to provide a transparent, compliant, and professional shareholder experience.

Assess The Outcome

Regardless of what stakeholders vote on, the outcome of the vote will likely have a financial impact on the association. Preferred stock votes can shift how much capital the association can raise, and at what cost, potentially affecting borrower rates or service levels.

For example, approved changes may give the association more flexibility to raise capital or restructure, improving long-term financial health. But rejected changes might restrict your options, limiting capital access or raising the cost of funds. In either case, decisions that affect capital costs may influence lending rates for borrowers over time, so preferred stock votes are no small matter.

Preferred Stock Votes, Done Right

Farm credit associations offer much-needed financing to rural communities. Offering preferred stock is a helpful tool for boosting funding without diminishing farmers’ say in how the organization runs.

However, farm credit associations might occasionally need to make changes to how preferred stock works, which requires a preferred stock vote. But managing vendors, tight timelines, and compliance requirements can be overwhelming for these organizations. SBS offers a fully auditable process for elections. Plus, you get a dedicated project manager from SBS to oversee the election from start to finish, ensuring that your shareholders have a great experience. Spend less time on administering elections and more time supporting American agriculture: See how SBS helps farm credit associations streamline the voting process.