2. PREFRENCE SHARES
Preference shares are those which have preferential right to
the payment of dividend during the life-time of the
company and a preferential right to the return of capital
when the company is wound up.
3. TYPES OF PREFERENCE SHARES
Cumulative and Non cumulative.
Participating and Non Participating.
Convertible and Non Convertible.
Redeemable and Non Redeemable.
4. CUMULATIVE AND NON CUMULATIVE
Holders of Cumulative preference shares are entitled to
recover the arrears of preference dividend before any
dividend is paid on equity shares.
In the case of Non- cumulative Preference shares arrears of
dividend do not accumulate and hence, if dividend is to be
paid to equity shareholder in any year, dividend at a fixed
rate for only 1 year will have to be paid to preference
shareholder before equity dividend is paid.
5. Participating and Non Participating
Participating Preference shareholders are not only entitle to
only fixed rate of dividend but have the right to receive any
surplus profit which remains after dividend has been paid
at a certain rate to equity shareholders.
Non Participating Preference shareholders are entitle to
only fixed rate of dividend.
6. Convertible and Non Convertible
Holder of Convertible Preference shares enjoy the right to
get preference share converted into equity shares according
to the terms of issue.
Holder of Non Convertible Preference shares do not enjoy
any such right.
7. Redeemable and Non Redeemable
Redeemable Preference shares are those preference shares
whose amount can be returned by the company to their
holder within the life time of the company subject to the
terms of the issue and fulfillment of certain legal conditions
laid down in sec 80 of the companies act.
The amount of Non Redeemable Preference shares can be
returned only company is wound up.
8. BENEFITS
Helpful in raising long-term capital for a company.
Have first claim on profits and proceeds from the sale of the
company’s asset at the time of bankruptcy.
Have fixed rate of dividend for fixed number of years.
Guaranteed Rate of Return.
9. DRAWBACKS
Not traded in market like ordinary shares.
Not available to retail investors.
Not advantageous to investors form the point of view of
control & management as preference share do not carry
voting rights.
Cost of raising preference share capital is higher.
10. WHO CAN BUY PREFRENCE SHARES?
Financial Institution.
Lending firms.
Other investors through brokerage firm.
11. HOW TO SELL THESE SHARES?
Through private placement via broker at a negotiated price.
Price one receives depend upon financial state of the
company.
One may have to sell at discount which is negotiated price
not the market price.
