Preference shares; Features of preference shares

Meaning: Preference shares are those shares which are given preference as regards to
payment of dividend and repayment of capital. Preference shareholders are given preference
over equity shareholders as in the case of winding up of the company, their capital is paid
back first and then the equity shareholders are paid. Preference shareholders cannot exercise
their voting rights on all the matters. They can vote only on the matters affecting their own
interest.

Features of Preference Shares:

• Return on investment: Preference shares are given preference to get a return on

investment i.e. dividend. they are paid dividend first out of the profits made by a
company.

• Return of capital: These shareholders are paid their capital first in case of winding
up of the company.

• Fixed dividend:Preference shares have a fixed rate of dividend and that is the reason
they are called fixed income securities. Whether the company has low or high profits,
they are entitled only to a fixed rate of dividend.

• Non-participation in prosperity: On account of fixed dividends, these shares do not

have any change to share in the prosperity of the company's business. (except in case
of participating preference shares.)

• Non-participation in management: Preference shareholders do not participate in the

management of the company's affairs.