Characteristics of Preference Shares

Characteristics of Preference Shares

1.    Different from Ordinary Shares

Preference Share is quite different from ordinary shares, and these shares are issued as long term financing for a fixed divided.

2.    Cumulative Preference Share

In case of cumulative preference shares, the dividend is guaranteed, and may be paid in future, if company could not pay dividend for a particular year. it means that dividend does not lapses for nonpayment , rather accumulates.

3.    Non Cumulative Preference Share

In case of non cumulative preference share divided is only paid, where company can pay the divided, (otherwise it lapses).

4.    Not Traded in Stock Exchange

Preference shares are not traded in stock exchange; therefore they have no marketability. These shares are normally redeemed at particular date (buy back by company).

5.    Form of Loan

Preference shares may be regarded as form of long term loan, where fixed amount of dividend is paid to preference share holder for a particular period of time, and then shares are redeemed by the investor (preference share holder).

6.    Dividend is Fixed

Divided is normally fixed in case of preference shares, while in case of ordinary share dividend varies each year.

7.    No Voting Rights

Preference shares carry no voting rights, as already described that it is kind of long term loan arrangement by the company, therefore preference share does not carry voting rights.