Preference Shares
5paisa Research Team
Last Updated: 26 Feb, 2025 09:26 PM IST

Content
- Introduction
- What do you mean by preference shares
- What are the main types of Preference Shares?
- Features of Preference Shares
- Advantage of Preference Share
- Disadvantage of Preference Shares
- Conclusion
Introduction
A company that wants to expand needs capital to invest. It raises capital by offering securities to public investors, institutions, and organizations. These securities are of various types. Investors can choose any form of security depending on the benefit they seek to enjoy from investing. These securities have a financial value that depends on the company’s performance.
They represent direct or indirect ownership of the company depending on how they are designed and the associated terms and conditions. A company can choose the type of securities it can offer and a certain quantum of the capital raised in the form of share capital. The main types of shares offered are Equity and Preference. This article defines preference shares.
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Frequently Asked Questions
The risk associated with Preference shares is low as the shareholders get a fixed dividend which is not the case with equity shareholders. Also, in case a company is liquidated, preference shareholders are the first to get their dues after the debts are paid.
Convertible preference shares can be converted to equity shares by following the correct procedure. The preference shareholder must fill out the required forms and inform the company one month before the Annual General Meeting.
Redeemable preference shares are shares that the issuing company can buy back after a specified period or on a fixed date. These shares offer fixed dividends and are redeemed at a predetermined price, providing investors with a return of capital along with dividends.
Preference shares provide companies with a way to raise capital without diluting control, as they typically don't carry voting rights. For investors, they offer fixed dividends and priority over equity shareholders during profit distribution and liquidation, balancing risk and stable returns.