Finance and Management - 21

In the last blog, we read about dividends; in this blog, we would give an introduction to the concept of preference shares and list the type of preference shares. We would deal with a brief on each of the different types of preference shares in the next few blogs.

In addition to the equity capital, companies are allowed to also gather preference capital. The holders of preference capital enjoy preference over equity holders in two matters

1. Payment of periodic dividends
2. Distribution of assets on liquidation of the company

The preference share carries a fixed rate of dividend which is payable when the company has earned adequate profits and when the dividends are declared in the company's annual general meeting. At the time of liquidation, assets of the company that remain after paying the creditors’ must be utilized to pay the preference shareholders and after this if some assets still remain, it would be distributed amongst the equity holders.

There are number of varieties of preference shares, some of them are:

1. Cumulative and Non-Cumulative Preference Shares
2. Participating and non-participating preference shares
3. Redeemable and non-redeemable preference shares
4. Convertible and non-convertible preference shares

Read in Kannada:
http://somanagement.blogspot.com/2011/08/blog-post_173.html