WHAT IS THE DIFFERENCE BETWEEN EQUITY SHARES AND PREFERENCE SHARES?
The word ‘Shares’ is used in almost every sentence while talking about the Stock Market.
We all know what is a ‘share’. It is a part of the ownership of the Company. When you say you bought a share, you actually become the owner of some part of the Company whose share you just bought. But have you ever wondered: what type of share are you actually talking about? Equity share or preference share? Have you thought ‘How does it even matter? A share is a share. Equity or preference, it is all the same!’ Stakeindia is here to tell you that IT IS NOT THE SAME.
Here is how equity and preference shares differ:
Equity Shares | Preference Share | |
Trading | They can be traded on the stock market. | They can not be traded on the stock market. |
Ownership | They represent ownership in the Company. | They do not represent ownership in the Company. |
Voting rights | Equity Shareholders have the right to vote on all the matters of the Company. | Preference shareholders can vote only on matters that directly affect them and at the time of winding up of the Company. |
Dividend Rights | Equity Shareholders get dividends only after dividends are paid to preference shareholders. | Preference shareholders have a priority in receiving dividends. |
Dividend rate | Dividends paid to equity shareholders depend on the earnings of the Company. | Dividend rates for preference shares are fixed. |
Bonus shares | Equity shareholders can receive bonus shares. | Preference shareholders can never receive bonus shares. |
Convertibility | Equity shares are not convertible. | Preference shares can be converted into equity shares. |
Compulsion to issue | All companies have to necessarily issue equity shares. | All companies are not necessarily required to issue preference shares. |
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