Question

Which of the following are the best funds from risk point of view for the company as there is no question of repayment except when the company is liquidated? 1. funds issued by the issue of equity shares 2. funds issued by the issue of preference shares 3. funds issued by the issue of secured shares 4. funds issued by the issue of unsecured shares?

Answer 1

Whilt both preferred shares and common shares give shareholders ownership in a company, they come with different shareholder rights. 

Preference shares, also known as preferred shares, have the advantage of a higher priority claim to the assets of a corporation in case of insolvency and receive a fixed dividend distribution. These shares often do not have voting rights and can be converted into common shares. 

One way to think of preference shares is as a hybrid of a bond and a security. For this reason, preference shares are often used by venture capitalists for startup companies.

Dividends for preference shares are set at a specific rate. However, owning preference shares does not guarantee dividend payment. Preference shares can be cumulative or noncumulative. For cumulative shares, if a corporation fails to pay a dividend, that dividend amount is owed at some point in the future. The shares accumulate outstanding dividends.

For noncumulative shares, a dividend is lost if it is not paid. The dividends are paid to preference share owners prior to common owners receiving dividends. Dividends from preference shares may be given favorable tax treatment.

Another type of preference shares is participatory shares. These shares include not only a guaranteed dividend payment but also payment of an additional dividend amount if the corporation meets certain performance goals.

Read more: What is the difference between preference and ordinary shares? | Investopedia https://www.investopedia.com/ask/answers/043015/what-difference-between-preference-and-ordinary-shar... 
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