Preference shares:- Preference shares have some attributes similar to

equity shares and some to debenture. like in the case of equity shareholders’, there is no obligatory payment to the preference shareholders and the preference dividend is not tax deductable.() unlike in the case of debenture holders , wherein interest payment is obligatory. However similar to the debenture holder the preference shareholder earn a fixed rate of return for their dividend payment. In addition to this the preference shareholder have preference over the equity shareholder’s to the post-tax earning in the form of dividend and asset in the event of the liquidation.

Cont….

Other features of the preference capital include the call feature, wherein the issuing company has the option to redeem the shares(wholly or partly)ppriorto maturity date and at a certain price.

Types of preference shares:-1. Cumulative or Non cumulative shares :-for cumulative shares , the

dividend will be paid on cumulative basis. In case they remain unpaid in any financial year due to insufficient profits. The company will have to pay up all the arrears of preference dividends before declaring the equity dividend.

while on other hand non-cumulative shares do not enjoy such rights.2.Redeeemable or perpetual preference shares :-redeemable preference shares will be redeemed after a given maturity period , while the perpetual preference shares will remain with the company forever.

3.Convertible or non-convertible :- convertible preference shares are those which can be converted into shares or debentures. Whereas non convertible do not enjoy such rights.

Prior to company act, 1956 the companies could issue preference shares with votingRights. However, with the commencement of the company act, 1956 issue ofpreferenceShares with the voting rights has been restricted only in the following cases :-

1. There are arrears and dividends for two or more years in case of cumulativepreference shares

2. Preference dividend is due for a period of two or more consecutive precedingyears

3. In the preceding 6 years including the immediately preceding financial years,as if the Company has not paid the preference dividend for the period of threeor more years.

# 1 Four Major Difference between Equity and Preferencial Share

capital.

1)Voting rights

Equity share holders: Yes

Preference Share holders: No

Equity share holders are having ownership and voting rights.

They make a decision to through his voting rights

2)Dividend

Equity shareholder may get dividend after geting prefernce

share holders.so company gives preference to shareholder

thats why we call as a preferencial shareholders.

Eg: PS look like this way: 15% Preferencial share capital

15% is the dividend.

3)At the time of liquidation

At the time of liquidation preference shareholder get back

the money from the company rather than equity shareholders.

4)Redeemable and convertiable.

Preference share capital can be redeemed and covertable as

a equity shares and debentures .But equity share capital

cann't be redeemable and convertable as a shares.