Question
Equity Shares and Preference Shares
| Points | Equity Shares | Preference Shares |
| 1. Meaning | Shares that are not preference shares are called equity shares i.e. these shares do not have the preferential rights for payment of dividends and repayment of capital. | Preferences shares are shares that carry preferential rights as to payment of:• Dividend and• Repayment of capital. |
| 2. Rate of Dividend | Equity shares are given dividends at a fluctuating rate depending upon the profits of the company. | Preference shareholders get dividends at a fixed rate. |
| 3. Voting Right | Equity shareholders enjoy normal voting rights. They participate in the management of their company. | Preference shareholders do not enjoy normal voting right. They can vote only on matters affecting their interest. |
| 4. Return of Capital | Equity capital can not be returned during the lifetime of the company, (except in case of buyback). | A company can issue redeemable preference shares, which can be repaid during the lifetime of the company. |
| 5. Nature of capital | Equity capital is known as ‘Risk Capital’. | Preference capital is ‘Safe Capital’ with a stable return. |
| 6. Nature of investor | The investors who are ready to take risks to invest in equity shares. | Investors who are cautious about the safety of their investment invest in preference shares. |
| 7. Face Value | The face value of equity shares is generally ₹ 1/- or ₹ 10/- it is relatively low. | The face value of preference shares is relatively higher i.e. ₹ 100/- and so on. |
| 8. Right and bonus issue | Equity shareholder is entitled to get bonus and right issue. | Preference shareholders are not eligible for bonuses and right issues. |
| 9. Capital appreciation | The market value of equity shares increases with the prosperity of the company. It leads to an increase in the value of shares. | The market value of preference shares does not fluctuate, so there is no possibility/cheques of capital appreciation. |
| 10. Risk | Equity shares are subject to higher risk. | Preference shares are subject to less risk. |
| 11. Types | Equity shares are classified into:• Equity shares with normal voting rights.• Equity shares with differential voting rights. | Preference shares are classified as:• Cumulative Preference Shares• Non-Cumulative Preference Shares• Convertible Preference Shares• Non-Convertible Preference Shares• Redeemable Preference Shares• Irredeemable Preference Shares• Participating Preference Shares• Non-Participating Preference Shares |
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