Differentiate between equity shares and preferred shares.
The major differences between equity shares and preferred shares are as follows −
|Equity shares||Preferred 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.
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.
Published on 24-Jul-2020 10:41:51