Share Capital and Types of Shares — SPCC STD 11 Commerce — Question

Point of difference

Equity Share

Preference Share

Meaning

A share which has last preference in matters of getting dividend and the refund of the capital after the preference share is called Equity Share.

A share which has first preference in matters of getting dividend and the refund of the capital is called the Preference Share.

Requirements

To raise the share capital, it is mandatory to issue such shares.

It is not mandatory for a company to issue such shares.

Voting right

The member of the company have the right to give vote on all the resolutions passed by the company.

The preference shareholders can give votes only on the matters pertaining to them.

Rate of Dividend

The rate of dividend is not fixed. Change in the profit of the company affects the dividend.

The rate of dividend is fixed.

Refund of capital

At the time of dissolution of the company,the equity shareholder’s get the refund of their money invested after refunding money to preference shareholders.

The preference shareholders have the first right to get therefund of the capital at the time of dissolution of the company.

Risk

It is more risky because the rate of dividerid is not fixed and shareholder have last right to get the refund of the money invested in the company.

It is less risky because the rate of dividend is fixed and shareholders have preference to get the refund of capital than others.

Market price

As the rate of dividend is not fixed. There is fluctuation in the price of the share and so, there is more speculative trend in these shares.

As the rate of dividend is fixed, there is less chanceiif fluctuation in the price of the shares and so there is less speculative trend in these shares.

Investors Choice

The investors who are ready to take risk and want to gain maximum return,invest in such kind of share.

The investors who wants stable income and safety of capital for such kind of share.

Increase in capital

The value of equity shares increases due to right share and Bonus Share.

There is no increase in capital.