Types Of Preference Shares
                     Types Of Preference Shares
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A c o m p a n y  g e n e r a l l y  i s s u e s  t w o  t y p e s  o f  s h a r e s :
S h a r e h o l d e r s  h o l d i n g  c o m m o n  s h a r e s  a r e  k n o w n  a s  c o m m o n / e q u i t y  
s h a r e h o l d e r s  i n  a n  I P O .  C o m p a n i e s  r a i s e  m o n e y  b y  i s s u i n g  c o m m o n  s h a r e s .  
P r e f e r r e d  s h a r e h o l d e r s  a r e  i n d i v i d u a l s  w h o  r e c e i v e  s p e c i a l  s h a r e s  f r o m  
c o m p a n i e s .
W h a t  i s  P r e f e r e n c e  S h a r e ?
T h e  n a m e  s u g g e s t s  t h a t  p r e f e r e n c e  s h a r e s  g i v e  p r e f e r e n c e  t o  i n d i v i d u a l s  o v e r  
e q u i t y  s h a r e h o l d e r s  w h e n  i t  c o m e s  t o  d i v i d e n d s  o r  t h e  c o m p a n y ' s  a s s e t s  d u r i n g  
l i q u i d a t i o n .  A s  a  g e n e r a l  r u l e ,  p r e f e r e n c e  s h a r e s  a r e  i s s u e d  t o  B i g  I n v e s t o r s ,  
M u t u a l  F u n d s ,  o r  B i g  F i n a n c i a l  I n s t i t u t i o n s  w h e n  c o m p a n i e s  r e q u i r e  a  l a r g e1  
a m o u n t  o f  m o n e y  q u i c k l y.
Features of Preference Shares
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F i x e d  r a t e  o f  D i v i d e n d :
P r e f e r r e d  s h a r e h o l d e r s  r e c e i v e  a  f i x e d  d i v i d e n d  r a t e  b e f o r e  
d i v i d e n d s  a r e  p a i d  t o  e q u i t y  s h a r e h o l d e r s .  T h e  n a t u r e  o f  
p r e f e r e n c e  s h a r e s  d e t e r m i n e s  w h e t h e r  s h a r e h o l d e r s  r e c e i v e  
d i v i d e n d s .
N o  S e c u r i t y :  
T h e  p r e f e r r e d  s h a r e  c a p i t a l  i s  p a r t  o f  t h e  o w n e r ' s  f u n d  c a p i t a l .  N o  
c o l l a t e r a l  i s  t a k e n  b y  t h e  c o m p a n y  o r  g i v e n  b y  i t .
Vo t i n g  R i g h t s :
U n d e r  g e n e r a l  c o n d i t i o n s ,  p r e f e r e n c e  s h a r e h o l d e r s  d o  n o t  h a v e  
a n y  v o t i n g  r i g h t s .  P r e f e r e n c e  s h a r e h o l d e r s ,  h o w e v e r ,  g e t  v o t i n g  
r i g h t s  i f  d i v i d e n d s  h a v e  n o t  b e e n  p a i d  f o r  a t  l e a s t  t w o  y e a r s .
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Click to edit MaTsytpeer st iotlfe P srteyfleerence Shares
C u m u l a t i v e  P r e f e r e n c e  S h a r e s :
I n  t h i s  t y p e  o f  p r e f e r e n c e  s h a r e s  ,  s h a r e h o l d e r s  a r e  e n t i t l e d  t o  r e c e i v e  
d i v i d e n d s  e v e r y  y e a r  i r r e s p e c t i v e  o f  w h e t h e r  t h e  c o m p a n y  m a k e s  e n o u g h  
p r o f i t .
W h e n  a  c o m p a n y  i n c u r s  l o s s e s  d u r i n g  a  s p e c i f i c  y e a r  a n d  i s  u n a b l e  t o  p a y  
d i v i d e n d s  t o  i t s  s h a r e h o l d e r s ,  t h e  a c c u m u l a t e d  d i v i d e n d  i s  p a i d  t o  
p r e f e r e n c e  s h a r e h o l d e r s  a s  a r r e a r s  i n  s u b s e q u e n t  y e a r s
N o n - C u m u l a t i v e  P r e f e r e n c e  S h a r e s :
W h e n  a  c o m p a n y  i n c u r s  l o s s e s  d u r i n g  a  p a r t i c u l a r  y e a r  a n d  i s  u n a b l e  t o  p a y  
d i v i d e n d s  t o  i t s  s h a r e h o l d e r s ,  t h e  a r r e a r s  w i l l  n o t  b e  c a r r i e d  f o r w a r d .  S u c h  
p r e f e r e n c e  s h a r e s  e n t i t l e  s h a r e h o l d e r s  t o  d i v i d e n d s  o v e r  c o m m o n  
s h a r e h o l d e r s .
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ConCvelriticblke P rteofer eencde iSth aMresa: ster title style
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.
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Click to edit Master title style
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.Depending on 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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