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Types of Preference Shares

The document outlines various types of preference shares, including cumulative, non-cumulative, participating, non-participating, redeemable, non-redeemable, convertible, and non-convertible preference shares. Each type has distinct characteristics regarding dividend payouts, rights to surplus profits, and redemption options. This classification helps investors understand the benefits and limitations associated with each type of preference share.

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5 views

Types of Preference Shares

The document outlines various types of preference shares, including cumulative, non-cumulative, participating, non-participating, redeemable, non-redeemable, convertible, and non-convertible preference shares. Each type has distinct characteristics regarding dividend payouts, rights to surplus profits, and redemption options. This classification helps investors understand the benefits and limitations associated with each type of preference share.

Uploaded by

ethan.onay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Types of Preference Shares

The various types of preference share are discussed below:

1. Cumulative preference share: Cumulative preference shares are a special type of


shares that entitles the shareholders to enjoy cumulative dividend payout at times when a
company is not making profits. These dividends will be counted as arrears in years when
the company is not earning profit and will be paid on a cumulative basis, the next year
when the business generates profits.
2. Non-cumulative preference shares: These types of shares do not accumulate
dividends in the form of arrears. In the case of non-cumulative preference shares, the
dividend payout takes place from the profits made by the company in the current year. If
there is a year in which the company doesn’t make any profit, then the shareholders are
not paid any dividends for that year and they cannot claim for dividends in any future
profit year.
3. Participating preference shares: These types of shares allow the shareholders to
demand a part in the surplus profit of the company at the event of liquidation of the
company after the dividends have been paid to the other shareholders. In other words,
these shareholders enjoy fixed dividends and also share a part of the surplus profit of the
company along with equity shareholders.
4. Non-participating preference shares: These shares do not yield the shareholders the
additional option of earning dividends from the surplus profits earned by the company. In
this case, the shareholders receive only the fixed dividend.
5. Redeemable Preference Shares: Redeemable preference shares are shares that can
be repurchased or redeemed by the issuing company at a fixed rate and date. These
types of shares help the company by providing a cushion during times of inflation.
6. Non-redeemable Preference Shares: Non-redeemable preference shares are those
shares that cannot be redeemed during the entire lifetime of the company. In other
words, these shares can only be redeemed at the time of winding up of the company.
7. Convertible Preference Shares: Convertible preference shares are a type of shares
that enables the shareholders to convert their preference shares into equity shares at a
fixed rate, after the expiry of a specified period as mentioned in the memorandum.
8. Non-convertible Preference Shares: These type of preference shares cannot be
converted into equity shares. These shares will only get fixed dividend payout and also
enjoy preferential dividend payout during the dissolution of a company

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