Question

State the differences between preference shares and equity shares.

Answer 1

1. Preference shares-
   Preference shares are the shares which have the following two preferential right over, the equity shares:
   • Preference towards the payment of dividend at a fixed rate during the lifetime of the company and.
   • Preference towards the repayment of capital on winding up of the company.
2. Equity shares-
   Equity shares are those shares that do not preference shares. These shares do not enjoy any preferential rights. The rate of dividend is not fixed on equity shares and it depends upon the profits earned by the company. In case of winding up of a company equity shareholders are paid after the payment are made to preference shareholders. Equity shares are also known as ordinary shares.