What is preference share and its types (difference between equity share and preference share)

Preference Share: There are some such short terms related to the stock market that improve your understanding of investing, one of them is Preference Share. This is a term that new investors know very little about, but if you really want to make money from the stock market, then you should also know about what is Preference Share.

When any company issues shares, it mainly issues two types of shares, one is Equity and the other is Preference Share. Preference shares are not traded in the stock market, these shares are given only to the selected investors and promoters of the company.

When the company needs more money in less time, it issues preference shares. To get complete information about Preference Share, you have to read this article till the end.

In this article you will get to know what is Preference Share, what are the types of Preference Share, are the advantages and disadvantages of Preference Share and what is the difference between Preference Share and Equity Share.

What is Preference Share

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1 What is Preference Share

Meaning of Preference Share 

3 Types Of Preference Share

3.1 1 – Cumulative Preference Share

3.2 2 – Non – Cumulative Preference Share

3.3 3 – Convertible Preference Share

3.4 4 – Non – Convertible Preference Share

3.5 5 – Redeemable Preference Share

3.6 6 – Non – Redeemable Preference Share

4 Difference Between Equity Shares and Preference Shares

5 Advantages of Preference Shares

6 Disadvantages of Preference Shares

7 Common Questions Related to Preference Share

8 Last words: What is Preference Share 

8.1 Related Articles 

Preference Shares are called such shares that a company issues to its selected investors and promoters. The investors who hold preference shares of the company are called preference shareholders.

The preference share is considered to be safer than the equity share, if the company is on the verge of sinking then the preference shareholder is paid first and the preference shareholder gets a fixed Dividend Rate from the profit of the company.

Just as equity shareholders are the actual owners of the company, preference shareholders are not the actual owners of the company, they have only a nominal share of the company. The preference shareholder does not have any voting rights in the company.

The purpose of the company behind issuing preference shares is that it can collect more money in less time, so only Wealthy Investors, big financial institutions, mutual funds, etc. invest in preference shares.

Meaning of Preference Share 

Preference Share is called Preference Share. Preference shareholders are given preference in the payment of capital over equity shareholders.

Types of Preference Share

Preference Shares can be of different types, let us also take a look at the type of Preference Share.

1 – Cumulative Preference Share

In this type of stock, if the company does not make a profit in any financial year, and comes into profit in the next year, then in this situation the investor gets dividends for both years.

2 – Non – Cumulative Preference Share

In this type of stock, if the company does not make a profit in any one financial year, then the investor does not get the dividend for that year also.

3 – Convertible Preference Share

After a specified time period in convertible preference shares, the company can also convert these shares into equity shares at the option of the shareholder.

4 – Non – Convertible Preference Share

Such preference share shares cannot be converted into equity shares.

5 – Redeemable Preference Share

To such shareholders, the company returns its capital along with dividends after a certain time period. Such shareholders do not remain associated with the company for a long time.

6 – Non – Redeemable Preference Share

This type of shareholder does not have a fixed time period to pay the capital. However, when the company becomes liquidation, the company has to pay the capital.

Difference between equity share and preference share

People have many doubts about equity shares and preference shares, so we have clearly explained the difference between these two stocks through the table below.

Advantages of Preference Share

Preference shareholders get the following benefits.

• Preference shareholders have less risk as compared to other shareholders.
• Preference shareholders get dividends at a fixed rate.
• In the event of the company's dissolution, the preference shares are paid first to the holders.
• The preference shareholder is given first preference in making the payment.

Disadvantages of preference share

There are also some disadvantages to the preference shareholders which are as follows –

• Preference shareholders do not have any kind of voting rights in the company.
• Preference shareholders cannot sell their shares in the stock market.
• Preference shareholders are not the actual owners of the company, they cannot be involved in any decision of the company.
• Even if the company makes more profit in the market, the preference shareholders also get dividends at the prescribed rate.

Common Questions Related to Preference Share

What is the Hindi meaning of preference share?

Preference share means preference share. The preference shareholder is given first preference in the dividend or any liability of the company.

Do preference shareholders have voting rights?

No, preference shareholders do not have voting rights.

Which type of stock carries more risk Preference share or Equity share?

Equity shares carry more risk because if the company does not get profit, then the equity shareholder does not get any kind of dividend and the last payment is made to the equity shareholder even in the payment of money.

Last word: What is Preference Share 

We sincerely hope that after reading this article you must have understood Preference Share Kya Hai and how it is different from Equity Share. If you still have any queries left, then you can ask in the comment box below, we will try to give your answers soon.

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