EQUITY SHARES

• An equity share, commonly referred to as ordinary share also represents the

form of fractional or part ownership in which a shareholder, as a fractional
owner, undertakes the maximum entrepreneurial risk associated with a
business venture.
• Equity shares were earlier known as Ordinary Shares.
• The holders of these shares are the real Owners of the company.

FEATURES OF EQUITY SHARES

• Right on control
• Owned Capital
• Transfer of Shares
• Equal Rights

ADVANTAGES OF EQUITY SHARES

• No Obligation to pay Dividend
• Capital Gain
• Limited Liability
• Owner of the company

DISADVANTAGES OF EQUITY SHARES

• No Flexibility in capital structure
• Speculation
• Uncertain and Irregular Income
 • Limited control

PREFERENCE SHARES
• A share which entitles the holder to a fixed dividend, whose payment takes
priority over that of ordinary share dividends are known as Preference Shares.
They are also known as preferred stocks.
• They are a kind of hybrid instruments with a feature of both equity and debt.
• Preference shareholders are generally co-owner of the company and not the
controller.
FEATURES OF PREFERENCE SHARES

• Preferential Dividend
• Fixed Return
• Market Value
• Voting Right
• Right or Bonus Shares
• Risk of Capital
• Par value of Preference Shares
• Sinking fund retirement

TYPES OF PREFERENCE SHARES

• Irredeemable Preference Shares
• Redeemable Preference Shares
• Cumulative Preference Shares
• Non-Cumulative Preference Shares
• Non-Convertible Preference Shares
 • Convertible Preference Shares
• Participating Preference Shares
• Non-Participating Preference Shares

ADVANTAGES AND DISADVANTAGES OF PREFERENCE

SHARES

 ADVANTAGES
1. No legal obligation for dividend payment- Dividend is not a fixed
liability like the interest on the debt, which has to be paid in all
circumstances.

2. Improves borrowing capacity- By reducing debt to equity ratio.

3. No dilution in control- because of no voting rights and say in the

management.

 DISADVANTAGES

1. Costly source of finance - Not tax deductible hence, it affects the profits of
the company.

2. Skipping dividend disregard market image - Skipping of dividend payment

may not harm the company legally but it would always create a dent on the
image of the company.

3. High rate of dividend - The Company has to pay higher rates of dividends
to the preference shareholders as compared to the common shareholders.
 4. Effect on creditworthiness - In case of preference shares, the credit
worthiness of a company is definitely reduced because preference
shareholders possess the right over the personal assets of the company.

DIFFERENCE BETWEEN PREFERENCE SHARES AND

EQUITY SHARES

S.No. Basis Preference Shares Equity Shares

1 Rate of Dividend Paid at fixed rate May vary , depending
upon the profits

2 Arrears of Dividend Get accumulated for cumulative No accumulation

preference shares

3 Voting Rights No voting rights Voting rights

4 Right to participate in Have NO right Have right

Management

5 Convertibility It can be converted into equity It cannot be converted

shares

6 Winding up Have a right to return of capital Only paid when

before equity shares. This preference share
means they are safer. capital is paid fully