Preference Shares

A share that carries the following two preferential rights is called ‘Preference Share’:
(i) Preference Shares have a right to receive dividend at a fixed rate before any dividend given to equity shares.
(ii) Preference Shares have a right to get their capital returned, before the capital of equity shareholders is returned. in case the company is going to wind up.

Preference Shares can be classified as under:
(a) Cumulative Preference Share is that share on which arrears of dividend accumulate. Unless otherwise stated, a preference share is always deemed to be cumulative.

(b) Non-cumulative Preference Share is that share on which arrears of dividend do not accumulate as per the express provision in the Articles of Association.
(c) Participating Preference Share is that share which, in addition to two basic preferential rights, also carried on or more of the following rights as per articles:
(i) A right to participate in the surplus profits left after paying dividend to equity shareholders.
(ii) A right to participate in the surplus assets left after the repayment of capital to equity shareholders on the winding up of the company.

(d) Non-participating Preference Share is that share which is not a participating share. Unless otherwise stated, a preference share is always deemed to be a non-participating preference share.
(e) Convertible Preference Share is that share which confers on its holder a right of conversion into equity share.
(f) Non-convertible Preference Share is that share which does not confer on its holder a right of conversion into equity share. Unless otherwise stated, a preference share is always deemed to be a non-convertible one.
(g) Redeemable Preference Share is that share which is redeemable.