The document outlines preference shares, which are types of shares that give shareholders priority over common shareholders in terms of dividends and assets during liquidation. It details various types of preference shares, including cumulative, non-cumulative, convertible, and redeemable shares, along with their features and methods of selling. Preference shareholders typically prioritize timely dividend payments and may include large investors or financial institutions.

1. Types of Preference Shares

2. Table of Content
● What is Preference Share?
● Methods of selling preference shares
● Features of Preference Shares
● Types of Preference Shares
1. Cumulative Preference Shares
2. Non-Cumulative Preference Shares
3. Convertible Preference Shares
4. Non-Convertible Preference Shares
5. Redeemable Preference Shares
6. Non-Redeemable/Irredeemable preference Shares
7. Callable Preference Shares
8. Adjustable-Rate Preference Shares
9. Participative Preference Shares

3. What is Preference Share?
Who are the Preference shareholders?
Preference shareholders are generally Big Investors, Mutual Funds, or Big Financial Institutions because
these preference shares are only issued by the company only when the company required a large number
of funds in less time.
Preference shareholders are not allowed to sell their shares in the stock market. As equity share
preference shares come up with the maturity period and shareholders get dividends during the lifecycle of
those shares. Upon maturity, preference shareholders get their principal amount back.
Preference shares means those shares that give priority
to individual shareholders over equity/common
shareholders in concern to dividends and in company
assets in case the situation of liquidation arises.

4. Methods of selling preference shares
Preference share can be sold by these two method only:
● Call Feature: In call Back option the company will buy back their preference shares from the existing
shareholder at a pre-determined price
● Convertible Feature: In Convertible preference shares the shares are automatically gets converted into
common shares after a fixed period of time.
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5. Features of Preference shares
● Fixed-rate of dividend:
Preference shareholders gets priority over common/equity shareholders in payment of dividend at a fixed
rate.
● No Security:
Against preference shares companies do not provide any kind of securities. The preference share capital is
the part of the owner’s fund capital. It means no collateral is taken or given by the company.
● Voting Right:
Similar to common/equity shareholders, preference shareholders also do not get any voting rights but in
case the dividends are not paid for two or more than two years in that condition the preference
shareholders get Voting Rights.
● Hybrid Security:
Preference shares are called hybrid securities, as these shares have the features of equity shares as well as
debentures.

6. Types of Preference Shares
1). Cumulative Preference Shares
2). Non-Cumulative Preference Shares
3). Convertible Preference Shares
4). Non-Convertible Preference Shares
5). Redeemable Preference Shares
6). Non-Redeemable/Irredeemable preference Shares
7). Callable Preference Shares
8). Adjustable-Rate Preference Shares
9). Participative Preference Shares

7. 1). Cumulative Preference Shares
● In Cumulative Preference Shares, the shareholder are entitled to receive dividends every year irrespective that the
company is earning profits or not.
● In case, the company is bearing losses in a particular year and is unable to pay dividend to its shareholders. In such
cases, the company will pay accumulated dividends to its shareholders in the subsequent years as arrears.
2). Non-Cumulative Preference Shares
● In Non-Cumulative Preference Shares, shareholders receive dividends over common shareholders if the company is in
a position to give dividends.
● In case, if the company is bearing losses in a particular year and is unable to pay dividend to its shareholders. In such
cases, the arrears will not be carried forward to the subsequent years.

8. 3). Convertible Preference Shares
● These are the type of shares that can be converted into common shares after a fixed period of time. This fixed period is
pre-determined in the terms and conditions.
● After the conversion of the preference shares into equity shares, the shareholder will not get the fixed dividends that
they used to get every year and will enjoy the benefits of common shares.
4). Non-Convertible Preference Shares
● These types of shares will not get converted into common/equity shares and after completing of the maturity period,
these preference shares are bought back by the company.
● Such shareholders have preferred dividend payments over common shareholders if the company is in a position to do
so.

9. 5). Redeemable Preference Shares
● Redeemable Preference Shares are the type of shares that are redeemable by the company once their maturity period is over.
● The shareholder will receive the dividend till the maturity period of these shares and after maturity period the company will
redeem these shares at a pre-determined price.
6). Non-Redeemable/Irredeemable preference Shares
● These types of shares do not have the maturity period and shareholder will not get any principal amount back on such shares.
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10. 7. Callable Preference Shares
● These are the types of shares, which the company will buy back from the shareholders on or after a pre-determined
date.
● These callable shares are not same as redeemable shares, whereas callable shares can be called upon by the company
at a predetermined date and price even before the maturity date as per the terms and conditions.
8). Adjustable-Rate Preference Shares
● Adjustable-Rate Preference Shares are the type of shares in which shareholders do not get fixed dividends during their
maturity and get returns based on the market rate.
● Company issue these shares to save itself from interest rate risk. Post issuing the share, the companies gives dividend
to shareholders on the basis of the market rate.

11. 9). Participative Preference Shares
● These are the shares that get additional benefits of common shareholders apart from those of preference shareholders.
The additional benefits they get are:
● Additional Dividends: In this case, when the company make good profits in a particular year and decides to share that
profit with the shareholders in the form of additional dividends, then whatever additional dividends equity
shareholders will get over the fixed rate given to preference shareholders. Preference shareholders will also get that
additional dividend given to equity shareholders over them.
● Liquidation Event: If in case the company come in stage of liquidation and there is any liquidation event in that case
the preference shareholder will get their initial capital as well as shares from that of common shareholder’s share on a
pro-rata basis.

12. Conclusion
On the other hand, most preference shareholders are concerned with the timely payment of dividends
rather than the company’s growth. It is important to go through the terms and conditions of the type of
preference shares that you are going for and whether or not it suits your requirements.
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