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Preference shares offer fixed dividends and priority over equity shares in profit distribution and asset claims, but usually lack voting rights.
Preference shares are a type of equity share that gives shareholders priority over common equity shareholders in terms of dividends and asset distribution during liquidation. Preference shareholders typically receive a fixed dividend before any dividends are paid to common shareholders.
However, preference shareholders generally do not have voting rights in company matters. These shares are less risky compared to common equity shares because of the priority in dividend payments and liquidation proceeds. They can be cumulative (unpaid dividends accumulate) or non-cumulative (unpaid dividends are not carried forward).
Example:
If a company issues 5% preference shares, a shareholder will receive a fixed 5% dividend on their investment before any dividend is paid to common shareholders. For instance, owning 100 preference shares at ₹100 each would entitle the holder to an annual dividend of ₹500.
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