Differentiate between equity shares and preferred shares.

Banking & FinanceManagementCompanies/Organisations

The major differences between equity shares and preferred shares are as follows −

Equity sharesPreferred shares
  • Main source for fund raising.

  • Long term financing.

  • No redeem ability till lifetime of company.

  • They have ownership right.

  • Received dividend at fluctuating rate.

  • Paid at end, in case of insolvency.

  • They have voting right.

  • They can’t be converted.

  • Risk is high.

  • Dividend share is decided by company board.

  • No option for redemption.

  • Have right to participate in management.

  • Have lower denomination

  • More borrowing capacity.

  • High chances of over capitalization.

  • Reduction of capital by reorganising.

  • They are entitled to bonus issue.

  • Shares have lender of capital.

  • Short term financing.

  • Can be redeemed after certain period of time.

  • They don’t have owner right.

  • Receive dividend at fixed rate before equity shares.

  • Receive amount before equity shareholders, in case of insolvency.

  • They don’t have voting right.

  • Some preference shares can be converted into equity shares.

  • Less risk.

  • Dividend share is fixed.

  • Option for redemption.

  • Don’t have any right to participate in management.

  • Have higher denomination.

  • Less borrowing capacity.

  • Less chances for over capitalization.

  • Reduction of capital by repaying.

  • They are not entitled to bonus issues.

raja
Published on 24-Jul-2020 07:11:51
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