Question

What are the preference shares? Explain types of preference shares?

Answer 1

Answer:

Preference shares, also called preferred shares, are so-named because preferred shareholders have a higher claim on the issuing company's assets than common shareholders. In the most extreme case, this means that preferred shareholders must be paid for their interest in the company before common shareholders in the event of company bankruptcy and liquidation. The day-to-day implication of this claim is that preferred shares guarantee dividend payments at a fixed rate, while common shares have no such guarantee. In exchange, preferred shareholders give up the voting rights that benefit common shareholders.

The four main types of preference shares are callable shares, convertible shares, cumulative shares and participatory shares.