PREFERENCE SHARES

- Presented by Pooja Seervi

Introduction
Companies issue different types of shares to mop-up
funds from various investors .Before Companies Act, 1956
public companies used to issue three types of shares , i.e.
Preferences shares , ordinary shares , and deferred shares .
The companies Act ,1956 has limited the type os shares to only
two i.e. Preference shares and Equity shares .
Definition
As the name suggest , these shares have some preferences as
compared to other types of shares. The holder of Preference
shares have a prior right to receive fixed rate of dividend before
any dividend is paid to equity shares . The preference shares are
purchased by cautious investors who are interested in safety of
investment and who want steady returns on investment .
Features
1) Preference for Dividend
2) Nature of Capital
3) Preference for repayment of capital
4) Risk
5) Nature of Investor
Types of Preference shares
1) Cumulative & Non-cumulative Preferences shares
2) Participating & Non-participating Preferences shares
3) Convertible & Non-convertible Preferences shares
4) Redeemable & Irredeemable Preferences shares
Conclusion
The preference shares are suitable instrument for capital
raising . Since they do not carry any voting rights , there is no
interference by preference shareholders in the operations and
management of the company . Further the convertible option of
the preference share makes it suitable to minimize investment
risks in a venture capital or private equity transaction .