Difference Between Equity Shares And Preference Shares
Companies required money to run their business. Money work as the lifeline for any business. Companies raise capital by issuing share of the company. So company divided its capital into small parts of the equal values and each part is called a shares and each shares of the company carried equal values of company ownership.
This is one of the popular way of raising capital for company and through this individual user can also take a part in the ownership and get benefit. There are two types of shares issued by the company for the expansion of the company.
1. Equity Shares 2. Preference shares Introduction
What are Equity Shares?
● The amount raised by issuing equity shares is the money of the company, since they are securities issued under its share capital.
● When a company needs a large amount of funds for a long period of time, equity shares are a common source of long-term capital.
● Equity shareholders are also called common shareholders as they do not have any preferential rights like preference shareholders.
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What are Preference Shares
● Preference shares are those shares that give special preferences right to its shareholder in concern to dividends payment and liquidation. Which are primary advantages of preference shareholders. Over equity shareholders.
● Preference shares are also known as hybrid shares. Because they also carry the features of debentures and equity shares.
● Preference shares have a fixed rate of dividends attached to them similar to that of debentures in most cases.
preference shareholders are received dividends when the company is in a position to do so.
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Equity Shares Preference Shares
Definition Equity shares are common shares with no preference rights over other shareholders.
Preference Shares are shares that give preferential rights to its shareholders over dividends & in case of liquidation over equity shares.
Dividend Preference
Equity shareholders are given dividends after fulfilling all other external liabilities and dividends to payment to preference shareholders.
Preference shareholders are preferred over equity shareholders when it comes to dividend payment as they have a preferrential right of receiving dividends over equity shareholders whenever the company decide to give dividends.
Redemption of Shares
Equity Shares cannot be redeemed by the company until the company is in existence.
Preference shares can be redeemed by the company after a fixed period of time or after the completion of its maturity period.
Voting Rights Have Voting Rights.
Dividend Payment
Equity shareholders do not have a fixed rate of dividend and Equity Shareholder receive dividend at end.
Preference shareholders do not enjoy any such voting rights.
Liquidation
In case of liquidity : Equity shareholder will get claim in last, after external debt and preference shareholder.
Preference shareholders receive a predetermined fixed rate irrespective of the quantum of profit incurred by the company.
Dividend Arrears
Convertibility
In case of not payment of dividend in particular year, the dividends are not transferred to next year.
In this case preference shareholder will be preferred over equity shareholders.
Equity shares cannot be converted into preference shares.
In preference shares if in case of not payment of dividend in particular year, the dividends are transferred to next year.
Preference shares can be converted into equity shares, if they are convertible preference shares.
Risk Equity shareholders are at higher risk as their dividend payment depends on the profits incurred by a company.
Preference shareholders are at a lower risk in because they receive fixed rate of dividend every year and get first preference over equity shareholders.
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Types of Equity Shares 1. Authorized Share Capital 2. Issued Share Capital 3. Subscribed Share Capital 4. Paid-up Share Capital 5. Called-up Share Capital 6. Rights Issue 7. Sweat Equity Shares Bonus Shares Know about the feature of equity shares and preference shares
Types of Preference Shares 1. Cumulative Preference Shares 2. Non-Cumulative Preference Shares 3. Convertible Preference Shares 4. Non-Convertible Preference Shares 5. Redeemable Preference Shares 6. Non-Redeemable Preference Shares 7. Callable Preference Shares 8. Adjustable-Rate Preference Shares 9. Convertible Preference Shares Know in-depth about the features and types of preference shares.
