Distinguish between equity shares and preference shares on the basis of (a) Payment
of Dividend and (b) Return of capital.
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Answers
Answer:
When you own a share of a company, you own a part of the company. This is the basic understanding of a share.
But shareholders on the other, are of different types depending on the type of control over the company.
If the company raises fund through the issue of equity shares then the owners are either known as Equity shareholders or Preference shareholders depending on the type of share held.
Apart from this, there are also debentures. Many people confuse debenture holders as owners of the company, but that is not true. Debenture holders are not owners of a company like shareholders.
Equity Holders
Have Voting rights
Right to question the management
During winding up, equity holders will be paid in the end. After Debenture and preference holders
Are entitled to receiving Dividend payouts.
Entitles to Bonus, Rights issues and Buy backs
Part of the shareholding pattern of a company
Preference Share Holders
Don’t have voting rights.
Cannot interfere in the management of the company.
During winding up, preference shareholders will be paid before Equity shareholders but after Debenture holders.
Are entitled to receiving Dividend payouts.
Dividends are first paid to preference shares. The remaining portion will be paid to equity shareholders.
Debenture Holders
Don’t have voting rights.
Are not owners of a company but simply creditors.
Will not receive any dividend payouts.
During winding up, debenture holders will receive a payout before others as they are external lenders to a company.
Have the option to convert debentures to shares only if the debentures held are convertible.
So I hope this clears the air between the 3. It is vital for investors to go through a company’s shareholding pattern before investing. A presence of DII and FII along with a firm holding of the promoters sends out signals of confidence.
Thank you for reading!
Explanation:
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