Features of Equity Shares:
voting right,
no maturity period (i.e) irredeemable
no fix dividend,
bonus shares
Preference shares
Preference shares are securities issued by a company that do not carry voting rights like ordinary shares. However, they entitle their holders to a fixed dividend and have a set tenure, after which the company redeems the principal. Holders of preference shares get priority over those who own ordinary shares if the company is wound up. Preference shares can be convertible (into ordinary shares) as well as non-convertible.
Preference shares are quasi-debt instruments. Preference shares combine features of equity and debt. They carry equity risk as the principal is not secured. Also, they entitle holders to a dividend similar to fixed deposit interest and have a set tenure.
Preference shares are offered as part of share capital. The company pays fixed dividend to their holders. In this, they are unlike ordinary shares, where dividend is not fixed. But the biggest plus is that dividend income is tax-free in the hands of investors, though companies pay dividend distribution tax.
Features:
- shares on which a dividend at a fixed rate is promised by the company
- preference over equity share holders
- a fix maturity period or provision for conversion in to equity shares
- no voting right
- no provilege for rights & bonus shares
Types – Redeemable Vs Non-redeemable, Convertible Vs Non-convertible, Participating Preference shares
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