EQUITY SHARES AND PREFERENCE

SHARES
INTRODUCTION:
Every investor aims to maximise their return and grow wealth,however there is no

Way to do it .There are different types of shares traded in the secondary market

which can help in growing your wealth in this blog , lets understand equity and

preference shares and their differences.

What are Equity Shares?
Equity shares are ordinary stocks issued by a company for the purpose of
raising capital to expand their business. Investors who purchase equity
share units get partial ownership of the company. The number of equity
shares an investor buys is their portion of ownership in the company. As
equity shares are non-redeemable, they act as a long-term source of
financing for companies.
 What are Preference Shares?

Preference shares are those which offer shareholders fixed

dividends. Preferred shareholders are given their dividends before equity
shareholders receive theirs. However, preference shareholders do not get
the right to vote or participate in decision-making events of the company.
In terms of priority and repayment of capital, preference shares can be
ranked between debt and equity.
 Key Differences Between Equity
Shares and Preference Shares
Basis of Comparison Equity Shares Preference Shares

Definition Equity shares are ordinary shares of a Preference shares are ones that carry
company that represent ownership of the preferential rights in terms of dividend
company. payment and repayment of capital.

Rate of Dividends In the case of equity shares, the dividend rate Preference shareholders receive dividends at
is not fixed. The board of directors decide a fixed rate predefined at a standard share
dividend rates for equity shareholders after price value.
analysing the company's performance in the
past financial year.

Bonus Shares Equity shareholders are entitled to receive Preference shareholders are not entitled to
bonus stocks from the company. receive bonus shares.

Voting Rights Equity shareholders enjoy the right to vote Preference shareholders do not have voting
and participate in the company's decision- rights.
making process.
Capital Repayment Equity shareholders receive capital repayment at the Preference shareholders receive their
time of liquidation of the company and are the last capital repayment before equity
ones to receive it. shareholders.

Risk Equity shareholders are at high risk in comparison to In comparison to equity

preference shares. shareholders, the risk is low in the
case of preference shareholders.
Role in Equity shareholders are part owners and have the Preference shareholders do not enjoy
Management right to participate in company management. any advantage in terms of role in
management.
Convertibility Equity shares cannot be converted into preference Preference shares are convertible
shares. and can be converted into equity
shares.
Arrears of Equity shareholders cannot claim arrears of dividends. Preference shareholders can avail
Dividend arrears of dividends along with
dividends of the current year.
 CONCLUSION
If you analyse the differences between equity stocks and preference
stocks, you will see that both of them offer benefits in different ways.
Make sure to select the most suitable investment option depending on
your risk capacity and financial goals.