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Types Of Preference Shares

A company generally issues two types of shares: Common Shares and Preference Shares. When companies bring IPO, they raise money by issuing common shares, and shareholders holding common shares are known as common/equity shareholders. Sometimes companies issue special shares to preferred individuals, these individuals are called preferred shareholders.There are different types of preference shares .These different types of preference shares are categorized into participatory, non-participatory, convertible, non-convertible, cumulative, non-cumulative, and so on. Want to know more ?

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Types Of Preference Shares

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  1. Types Of Preference Shares A company generally issues two types of shares: Shareholders holding common shares are known as common/equity shareholders in an IPO. Companies raise money by issuing common shares. Preferred shareholders are individuals who receive special shares from companies. What is Preference Share? The name suggests that preference shares give preference to individuals over equity shareholders when it comes to dividends or the company's assets during liquidation. As a general rule, preference shares are issued to Big Investors, Mutual Funds, or Big Financial Institutions when companies require a large amount of money quickly.

  2. Features of Preference Shares Fixed rate of Dividend: Preferred shareholders receive a fixed dividend rate before dividends are paid to equity shareholders. The nature of preference shares determines whether shareholders receive dividends. No Security: The preferred share capital is part of the owner's fund capital. No collateral is taken by the company or given by it. Voting Rights:  Under general conditions, preference shareholders do not have any voting rights. Preference shareholders, however, get voting rights if dividends have not been paid for at least two years.

  3. Types of Preference Shares Cumulative Preference Shares: In this type of preference shares , shareholders are entitled to receive dividends every year irrespective of whether the company makes enough profit. When a company incurs losses during a specific year and is unable to pay dividends to its shareholders, the accumulated dividend is paid to preference shareholders as arrears in subsequent years Non-Cumulative Preference Shares: When a company incurs losses during a particular year and is unable to pay dividends to its shareholders, the arrears will not be carried forward. Such preference shares entitle shareholders to dividends over common shareholders.

  4. Convertible Preference Shares: In the terms and conditions, the period after which shares will be converted into common shares is predetermined. In the event that the preference shares are converted into ordinary shares, the shareholders will be considered common shareholders and will no longer receive the fixed dividends. Non-Convertible Preference Shares: Depending on the situation, preference shareholders may receive preferential dividend payments over common shareholders when their preference shares reach maturity. Redeemable Preference Shares: At maturity, redeemable shares can be redeemed by the company. This type of share is a preference share. After the shares reach their maturity period, the company will redeem these shares at a predetermined price.

  5. Non-Redeemable/Irredeemable preference Shares: Preference shares that are irredeemable do not have a maturity date, and you do not receive any principal back if you hold them.Dependingon the issue's terms and conditions, you will receive a fixed dividend. Preference shares like these are also known as irredeemable or perpetual preference shares. India's Companies Act of 2013 prohibits the issue and purchase of non-redeemable shares. Note- If you wish to learn about stock market and about investment you first need to gain knowledge about basics of stock market and for this a stock market basic course can help you to attain that knowledge. 

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