Question

write a note: preference share capital​

Answer 1

Preference shares fall under four categories: cumulative preferred stock, non-cumulative preferred stock, participating preferred stock and convertible preferred stock.

Cumulative preferred stock includes a provision that requires the company to pay shareholders all dividends, including those that were omitted in the past, before the common shareholders are able to receive their dividend payments. These dividend payments are guaranteed but not always paid out when they are due. Unpaid dividends are assigned the moniker "dividends in arrears" and must legally go to the current owner of the stock at the time of payment. At times additional compensation (interest) is awarded to the holder of this type of preferred stock.

Preference shares fall under four categories: cumulative preferred stock, non-cumulative preferred stock, participating preferred stock and convertible preferred stock.

Cumulative preferred stock includes a provision that requires the company to pay shareholders all dividends, including those that were omitted in the past, before the common shareholders are able to receive their dividend payments. These dividend payments are guaranteed but not always paid out when they are due. Unpaid dividends are assigned the moniker "dividends in arrears" and must legally go to the current owner of the stock at the time of payment. At times additional compensation (interest) is awarded to the holder of this type of preferred stock.

Answer 2

Hello !

Preference Shares

• Preference shares are the shares which promise the holder a fixed dividend, whose payment takes priority over that of ordinary share dividends. Capital raised by the issue of preference shares is called preference share capital.

• The preference shareholders are in superior position over equity shareholders in two ways: first, receiving a fixed rate of dividend, out of the profits of the company, before any dividend is declared for equity shareholder and second, receiving their capital after the claims of the company’s creditors have been settled, at the time of liquidation. In short, the preference shareholders have a preferential claim over dividend and repayment of capital as compared to equity shareholders.

• Dividends are payable only at the discretion of the directors and only out of profit after tax, to that extent, these resemble equity shares. Preference resemble debentures as both bear fixed rate of return to the holder. Thus, preference shares have some characteristics of both equity shares and debentures.

• Preference shareholders generally do not enjoy any voting rights. In certain cases, holders of preference shares may claim voting rights if the dividends are not paid for two years or more on cumulative preference shares and three years or more on non-cumulative preference shares.

Hope It Helps u :)