Preference shares
as those shares which carry preferential rights as the payment of dividend at a
fixed rate and as to repayment of capital in case of winding up of the company.
Thus, both the preferential rights viz. (a)
preference in payment of dividend and (b) preference in repayment of capital in
case of winding up of the company, must attach to preference shares.
The rate of
dividend on these shares is fixed and the dividend on these shares must be paid
before any dividend is paid to ordinary shares.
The main benefit
to owning preference shares are that the investor has a greater claim on the
company's assets than common stockholders.
In general, there
are four different types of preferred stock: cumulative preferred stock,
non-cumulative preferred stock, participating preferred stock, and convertible
preferred stock. also called preferred stock.
