Question

What are preference Shares? State all its types?​

Answer 1

Answer:

Preferred shares are a hybrid form of equity that includes debt-like features such as a guaranteed dividend. The four main types of preference shares are callable shares, convertible shares, cumulative shares, and participatory shares.

Explanation:

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Answer 2

DEFINATION:-

Preferred stock is a component of share capital that

may have any combination of features not possessed by common stock, including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument.

Explanation:

TYPES:-

1) Cumulative Preference Share

In case where a company does not declare dividends for a particular year, they are carried to next year. They are treated as arrears.And a preference share is said to be cumulative in a case when the arrears pertaining to dividend are cumulative in nature and such arrears are cleared before any dividend payment to equity shareholders.

2) Non- Cumulative Preference shares:

As the name suggests, it does not accumulate dividends. Dividend skipped by the company are not paid, which means they have the right to avail dividend from the profits earned from that particular year.Notably, dividends are only payable from net profits of each year. So, in case where there are no profits for a particular year, the arrears of dividend cannot be claimed in subsequent years. Preference shares are cumulative in nature unless explicitly described as otherwise.

3) Redeemable Preference shares:

These are shares which can be redeemed or repaid after the fixed period as issued by the company or even before at the option of the company.

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4) Non-redeemable

These shares cannot be redeemed during the life of the company.

5) Convertible Shares

Shares can be converted into equity at the option of the holder after the stated tenure.

6) Non-convertible shares

Shares which cannot be converted to equity are called non convertible shares.

7) Participating shares

Such shares have the right to participate in surplus profits of the company at the time of liquidation after the company had paid to other holders.

8) Non-participating Preference Shares

Preference shares, which have no right to participate in the surplus profits or in any surplus on liquidation of the company, are called non-participating preference shares.