Finance and Management - 22

Continuing from our last blog where we began our discussion on preference shares, we today look at the different types of preference shares

Cumulative and Non-Cumulative Preference shares:

Cumulative preference shares give the shareholders the right to receive dividends for a past year or for several past years in which no dividends were paid. The preference dividends not declared in a period (wrt Preference Shares) is called dividends in arrears. Such a dividend arrear cannot be considered a liability, since the obligation doesn’t exist till the dividends are declared by the company.

Participating and Non-participating Preference Shares:

The Participating preference shareholders have the right to share in the profits of the company after the equity shareholders are paid a certain rate of dividend. These shares can also carry the right to share in the company's assets over and above their face value. The Non-participating preference shareholders can only receive the fixed dividends and cannot share the surplus left after paying equity dividends.

We will deal the remaining two types of preference shares in the next blog.

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