Question
Differentiate between ‛equity shares‘ and ‛preference shares‘.
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BASIS FOR COMPARISON
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EQUITY SHARES
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PREFERENCE SHARES
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Meaning
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Equity shares are the ordinary shares of the company representing the part ownership of the shareholder in the company.
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Preference shares are the shares that carry preferential rights on the matters of payment of dividend and repayment of capital.
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Payment of dividend
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The dividend is paid after the payment of all liabilities.
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Priority in payment of dividend over equity shareholders.
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Repayment of capital
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In the event of winding up of the company, equity shares are repaid at the end.
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In the event of winding up of the company, preference shares are repaid before equity shares.
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Rate of dividend
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Fluctuating
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Fixed
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Redemption
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No
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Yes
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Voting rights
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Equity shares carry voting rights.
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Normally, preference shares do not carry voting rights. However, in special circumstances, they get voting rights.
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Convertibility
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Equity shares can never be converted.
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Preference shares can be converted into equity shares.
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Arrears of Dividend
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Equity shareholders have no rights to get arrears of the dividend for the previous years.
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Preference shareholders generally get the arrears of dividend along with the present year's dividend, if not paid in the last previous year, except in the case of non-cumulative preference shares.
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