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# Types of Preference Shares The preference shares can be broadly classified as shown below: ## Preference - Participating and Non-Participating - Cumulative and Non-cumulative ### Participating and Non-Participating **A.** **Participating preference shares** - participate in the surplus prof...

# Types of Preference Shares The preference shares can be broadly classified as shown below: ## Preference - Participating and Non-Participating - Cumulative and Non-cumulative ### Participating and Non-Participating **A.** **Participating preference shares** - participate in the surplus profits in addition to the preference dividend. **B.** **Non-participating shares** - do not have the right to participate in the surplus profits. ### Cumulative and Non-Cumulative **1.** **Non-cumulative preference shares** - are not entitled to receive arrears of dividend. **2.** **The non-participating shares** - do not participate in any distribution of dividend. Therefore, they are more preferable to non-participating shares. **3.** **Cumulative preference shares** - If the dividend is not paid in any particular year due to poor performance, the dividend is accumulated and paid in the following year along with the current year's dividend. ### Redeemable and Irredeemable **1.** **Non-cumulative preferences** - do not receive any arrears of dividend. **2.** **Redeemable preferences** - These shares carry less risk and hence these shares are less costly. ## Points to Distinguish Between Preference Shares and Equity Shares **1.** **Redeemability** - According to the Companies (Amendment) Act, 1988, a company cannot issue irredeemable preference shares. - In other words, preference shares are to be redeemed after a certain period of time. **2.** **Fixed Dividend Rate:** - The preference shareholders get a regular, fixed dividend. - The rate of dividend is fixed. - The rate of dividend is fixed. The rate of dividend from one company to that of another. **3.** **Nature of Capital:** - The preference shares are to be redeemed after a certain period of time. - Therefore, unlike equity stakes, they do not provide permanent share capital. **4.** **Capital Appreciation:** - The capital appreciation is not compared to equity shares of profitable companies. **5.** **Risk Factor:** - There is less risk for preference shareholders, because, they have preference for dividend and return of capital over the equity shareholders. **6.** **Face Value:** - Preference Shares are normally issued for a face value of ₹100/-. **7.** **Bonus Shares:** - Preference Shareholders are not entitled for the issue of bonus shares. **8.** **Voting Rights:** - They do not enjoy normal voting rights in company meetings. - They have voting rights in respect of those matters which affects their interests. **9.** **Nature of Investors:** The investors who like to take larger risks prefer to opt for preference shares. **10.** **Types:** - There are several types of preference shares, namely cumulative, non-cumulative, redeemable, etc.