banner image

Opt In (Do Not Edit Here)

banner image

Meaning Definition Types Of Preference shares


The parts of corporate securities are called as preference shares. It is the shares, which have preferential right to get dividend and get back the initial investment at the time of winding up of the company. Preference shareholders are eligible to get fixed rate of dividend and they do not have voting rights.

Preference shares may be classified into the following major types:

Preference shares
[Post Image Courtesy of JK1991 at]

1. Cumulative preference shares: Cumulative preference shares have right to claim dividends for those years which have no profits. If the company is unable to earn profit in any one or more years, C.P. Shares are unable to get any dividend but they have right to get the comparative dividend for the previous years if the company earned profit.

2. Non-cumulative preference shares: Non-cumulative preference shares have no right to enjoy the above benefits. They are eligible to get only dividend if the company earns profit during the years. Otherwise, they cannot claim any dividend.

3. Redeemable preference shares: When, the preference shares have a fixed maturity period it becomes redeemable preference shares. It can be redeemable during the lifetime of the company. The Company Act has provided certain restrictions on the return of the redeemable preference shares.

Irredeemable Preference Shares:

Irredeemable preference shares can be redeemed only when the company goes for liquidator. There is no fixed maturity period for such kind of preference shares.

Participating Preference Shares:

Participating preference sharesholders have right to participate extra profits after distributing the equity shareholders.

Non-Participating Preference Shares:

Non-participating preference sharesholders are not having any right to participate extra profits after distributing to the equity shareholders. Fixed rate of dividend is payable to the type of shareholders.

Convertible Preference Shares:

Convertible preference sharesholders have right to convert their holding into equity shares after a specific period. The articles of association must authorize the right of conversion.

Non-convertible Preference Shares:

There shares, cannot be converted into equity shares from preference shares.

Sourced From: Financial Management By C. Paramasivan And T. Subramanian
Meaning Definition Types Of Preference shares Meaning Definition Types Of Preference shares Reviewed by Blog Editor on Thursday, February 09, 2017 Rating: 5

No comments:

Do you have any reasonable comments for this post ? Please feel free to drop them below using the comment box. We will moderate and publish them as soon as possible. Cheers !

Powered by Blogger.