1.1.7 Preference Shares

This topic describes the preference shares feature.

Preference shares are also shares with certain variations.

• They carry a fixed dividend, which is announced at the time of the issue.
• They have no voting rights.
• Payment of dividend to these shares are done first prior to dividend payment on equity shares.
• The claim of the preference share holder precedes the claim of equity shareholder.

Preference shares may be cumulative or non-cumulative. If they are cumulative, they are entitled to a dividend, whether or not the firm earns it. If during a particular year the company does not have adequate earnings to distribute as dividends, the dividends in arrears are accumulated and paid in a later year when earnings are sufficient. Some preference shares are convertible. This option permits the shareholders to exchange preference shares for equity shares of the same company.