Sources of Corporate Finance — Secretarial Practice STD 12 Commerce / Arts — Question

• Cumulative preference shares are those shares on which dividend accumulates until it is fully paid.
• That is, if the dividend is not paid in one or more years due to inadequate profit, then such unpaid dividend gets accumulated and is carried forward till next year.
• The accumulated dividend is paid when the company performs well.
• The arrears of dividends are paid before making payment to equity shareholders.
• The preference shares are always cumulative unless otherwise stated in Articles of Association.

(ii) Participating Preference Shares:

• The holders of these shares are entitled to participate in surplus profit besides preferential dividends.
• They participate in the high-profit condition of the company.
• Surplus profit here means excess profit that remains after making payment of dividends to equity shareholders.
• Such surplus profit up to a certain limit is distributed to preference shareholders.

(iii) Non-Convertible Preference Shares:

• These shares are not converted into equity shares.
• They will remain as preference shares forever till paid back.

(iv) Irredeemable Preference Shares:

• Shares which are not redeemable are payable only on winding up of the company and are called irredeemable preference shares.
• As per section 55(1) of the Companies Act 2013, the company cannot issue irredeemable preference shares in India.