Difference Between Equity Shares And Preference Shares

1. DIFFERENCE BETWEEN EQUITY SHARES AND PREFERENCE SHARES

2. WHAT ARE EQUITY SHARES  A company's equity shares are securities issued under its share capital, which means that the amount raised by issuing equity shares belongs to the company.  Companies generally issue equity shares when they need a large amount of cash for a longer period of time. Equity shares are an important source of long-term capital for companies.  A common shareholder is one who does not have any preferential rights, such as a preference shareholder.

3. WHAT ARE PREFERENCE SHARES The primary advantage of preference shareholders over equity shareholders is their preference rights in terms of dividends and liquidation. In addition to having the features of debentures and equity shareholders, preference shares are also called hybrid shares. Whenever preference shares are issued, the funds are categorized under Preference share capital on the balance sheet. The primary purpose of preference share capital is to expand the business or carry out daily operations. As with debentures, preference shares have a fixed dividend rate, and preferred shareholders are usually paid dividends when the company is in a position to do so, just as equity shareholders are. That is why these shares are also called hybrid shares. Preference shares are of different types and have varied characteristics. Preferred shareholders, however, do not have voting rights, so they cannot control the company's activities. As a result of their types, preference shares may be converted into equity shares and can also be repurchased by companies if they decide to do so. Know in-depth about the features and types of preference shares.

4. The Main Difference Between Equity Shares And Preference Shares Equity Shares Preference Shares Definition There is no preference over other shareholders with equity shares, as they are common shares. A preference share is a share that gives the shareholder priority over dividends and equity in the event of a liquidation. Dividend Preference In addition to dividend payments to preference shareholders, equity shareholders receive dividends after all external liabilities have been met. Whenever the company decides to pay dividends, preference shareholders have a preferential right to receive dividends over equity shareholders. Voting Rights It gives equity shareholders a certain degree of control over a company's management because they are granted a right to vote when participating in its decision-making process. Such voting rights are not available to preference shareholders. Thus, they do not have any influence over a company's decision-making process. Dividend Payment There is no fixed dividend rate for equity shareholders, and they receive dividends at the end after all other obligations have been met. It does not matter how much profit the company makes, preference shareholders receive a predetermined fixed rate. Liquidation After paying off external debts and preference shareholders' claims, equity shareholders will have the last claim over the assets of the company. A preference shareholder's claim will be settled before an equity shareholder's claim in the event of liquidation. Dividend Arrears If a dividend is not paid in a particular year, the arrears of dividend are not carried forward. When preference shareholders are cumulative preference shareholders, dividend arrears are transferred to subsequent years. Convertibility It is impossible to convert equity shares into preference shares under any circumstances. It is possible to convert convertible preference shares into equity shares.