{"id":509,"date":"2019-04-17T07:10:51","date_gmt":"2019-04-17T07:10:51","guid":{"rendered":"https:\/\/rta.saginfotech.com\/blog\/?p=509"},"modified":"2019-04-17T07:53:28","modified_gmt":"2019-04-17T07:53:28","slug":"preference-shares-and-different-types","status":"publish","type":"post","link":"https:\/\/rta.saginfotech.com\/blog\/preference-shares-and-different-types\/","title":{"rendered":"Preference Shares and Its Different Types?"},"content":{"rendered":"\n

Preference shares<\/strong> are generally given priority over the common or equity shares by the company owners when they made payment of surplus or dividend. Well, those are a bit unfamiliar with the preferential allotment of shares<\/strong><\/a>, the preference shareholders are the first ones who get dividends in case the company decides to pay the same. Owners of the preference shares get fixed dividend, Although in a company liquidation event, the preference shareholders are paid after the bond shareholders, but before the equity holders. <\/p>\n\n\n\n

To clarify things a\nbit more, when a particular individual buys shares of any specific\ncompany, he\/she becomes part-owner of the same firm. Therefore, the\nperson is known as a common shareholder or equity shareholder. But,\none cannot directly become a preference shareholder as they are\ngenerally the people who own the capability to buy a large chunk of\ncompany shares and such shareholders are also pre-decided by the\nboard members by passing a special resolution. \n<\/p>\n\n\n\n

The preference\nshareholders generally include company promoters, large VCs,\nfinancial institutions, and board of directors of a company. \n<\/p>\n\n\n\n

Preference shares are also known as the preferred stock<\/strong> or preferred shares<\/strong> and can be any combination of attributes, i.e. features of both equity and debt. <\/p>\n\n\n\n

Talking more about preference shares, they can be converted into common stocks in respect to divided and asset payout during liquidation of the company. Preference shares can also be redeemed before the specified maturity period, but as per the discretion of the company. However, these shares are illiquid as they can’t be traded on stock exchanges. The preference shareholders also do not get voting rights in the company. <\/p>\n\n\n\n

To Give You a Detailed Idea, Different Types of Preference Shares are Mentioned Underneath:<\/strong><\/h2>\n\n\n\n
\"Types<\/figure>\n\n\n\n

1. Cumulative Preference Shares<\/strong><\/h3>\n\n\n\n

Cumulative\npreference share mainly refers to those shares which have a right of\ndividend even in those years when a company does not make any\nsignificant profits. The companies are bound to pay the unpaid\ndividend on preference shares before they made any payment of\ndividends to equity shareholders. \n<\/p>\n\n\n\n

If a company skips paying the dividend on preference shares in a \u2018no profit\u2019<\/strong> year, then such unpaid dividend is called arrear. The arrears accumulate for every subsequent year and must be paid out of profits by the company. <\/p>\n\n\n\n

2. Non- Cumulative Preference Shares<\/strong><\/h3>\n\n\n\n

It is very evident\nfrom the name; the dividends on these shares do not accumulate every\nsubsequent year in case if they are unpaid when due. Non-cumulative\nshares have reverse characteristics to cumulative shares which also\nmeans that dividends on such shares are only paid from the profits\nmade in a given\/same year.<\/p>\n\n\n\n

If any particular company does not make a satisfactory profit, then non-cumulative preference shareholders get zero or partial dividends whereas arrears do not get carried forward in subsequent years. <\/p>\n\n\n\n

3. Redeemable Preference Shares<\/strong><\/h3>\n\n\n\n

As per Section 80 of\nthe Companies Act, the preference shares, which can be redeemed or\nrepaid after a specific time period or at the company discretion are\ngenerally known as the redeemable preference shares. Such shares are\npermanent in nature until a specific company goes to the liquidation\nand in that case, such shares resemble the equity shares. \n<\/p>\n\n\n\n

4. Non-Redeemable Preference Shares <\/strong> <\/h3>\n\n\n\n

As the name\nsuggests, these shares cannot be redeemed by the shareholders and are\nalso at the option of the company, until it becomes defunct. So, the\nshareholders, in this case, are strongly advised to find alternative\nways of investment for getting an equal amount of sum that he\ninvested in non-redeemable shares. So, investment in equity shares is\nalso more profitable in this particular case. \n<\/p>\n\n\n\n

5. Convertible Shares<\/strong><\/h3>\n\n\n\n

Convertible share is\nthe ones which can be easily converted into the equity share at a\nspecific rate that is pinned on the expiry of a stated period. The\nholder of such shares enjoys the right to convert their shares into\nequity ones within a specific period. \n<\/p>\n\n\n\n

6. Non-Convertible Shares<\/strong><\/h3>\n\n\n\n

One can easily get\nan idea about the functioning of the non-convertible shares through\ntheir name itself. Still, to clarify the odds, non-convertible shares\nare the ones that cannot be converted to equity ones. \n<\/p>\n\n\n\n

7. Participating Shares<\/strong><\/h3>\n\n\n\n

Participating shareholders own the right to participate in surplus profits of the company in case of liquidation along with the other equity shareholders.<\/strong> apart from the fixed deposits, the participating shareholders also have the luxury to participate in surplus profits that are offered only to equity shareholders of the company during its functioning. The surplus profits are divided among the participating preference shareholders and equity shareholders in a pre-agreed ratio. <\/p>\n\n\n\n

8. Non-Participating Preference Shares<\/strong><\/h3>\n\n\n\n

As the name\nsuggests, the non-participating preference shareholders do not own a\nright to have payments for the additional surplus made by the company\nduring its functioning and even after it reaches the liquidation\nstage. In practicality, most of the preference shares are\nnon-participating in nature, which limits the preference shareholders\nto receive only stated dividends no less and no more. \n<\/p>\n\n\n\n

This is also because\npreference shareholder leaves the company extra earnings\/profits in\nlieu of their right to receive the stated dividends each year. \n<\/p>\n","protected":false},"excerpt":{"rendered":"

Preference shares are generally given priority over the common or equity shares by the company owners when they made payment of surplus or dividend. Well, those are a bit unfamiliar with the preferential allotment of shares, the preference shareholders are the first ones who get dividends in case the company decides to pay the same. […]<\/p>\n","protected":false},"author":1,"featured_media":510,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"yoast_head":"\nPreference Shares and Its Different Types? | SAG RTA<\/title>\n<meta name=\"description\" content=\"Read the complete blog about preference shares and its different types. 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