Question

Justify the following statement.

Preference Shareholders get priority in dividends over equity shareholders.

Answer 1

Certain preferential rights are connected to preference shares that are not equity shares. Preference shares include the following types of shares with preferred rights:

1. A right to dividend payments during the duration of the business.
2. A preferred claim to the capital return in the case that the business is wound up.

On the distributable share of the annual net profit, shares of preference are charged first. The preference shareholders receive their dividend before the equity stockholders do.