PREFRENCE SHARES

SUBMITTED TO: MR. HIMAL PARIKH

SUBMITTED BY: PRASHANT MAHARSHI

PREFRENCE SHARES

Preference shares are those which have preferential right to

the payment of dividend during the life-time of the

company and a preferential right to the return of capital
when the company is wound up.

TYPES OF PREFERENCE SHARES

Cumulative and Non cumulative.

Participating and Non Participating.
Convertible and Non Convertible.
Redeemable and Non Redeemable.

CUMULATIVE AND NON CUMULATIVE

Holders of Cumulative preference shares are entitled to

recover the arrears of preference dividend before any

dividend is paid on equity shares.

In the case of Non- cumulative Preference shares arrears of

dividend do not accumulate and hence, if dividend is to be

paid to equity shareholder in any year, dividend at a fixed
rate for only 1 year will have to be paid to preference
shareholder before equity dividend is paid.

Participating and Non Participating

Participating Preference shareholders are not only entitle to

only fixed rate of dividend but have the right to receive any
surplus profit which remains after dividend has been paid
at a certain rate to equity shareholders.

Non Participating Preference shareholders are entitle to

only fixed rate of dividend.

Convertible and Non Convertible

Holder of Convertible Preference shares enjoy the right to

get preference share converted into equity shares according

to the terms of issue.

Holder of Non Convertible Preference shares do not enjoy

any such right.

Redeemable and Non Redeemable

Redeemable Preference shares are those preference shares

whose amount can be returned by the company to their

holder within the life time of the company subject to the
terms of the issue and fulfillment of certain legal conditions
laid down in sec 80 of the companies act.

The amount of Non Redeemable Preference shares can be

returned only company is wound up.

BENEFITS
Helpful in raising long-term capital for a company.
Have first claim on profits and proceeds from the sale of the

companys asset at the time of bankruptcy.

Have fixed rate of dividend for fixed number of years.
Guaranteed Rate of Return.

DRAWBACKS
Not traded in market like ordinary shares.
Not available to retail investors.
Not advantageous to investors form the point of view of

control & management as preference share do not carry

voting rights.
Cost of raising preference share capital is higher.

WHO CAN BUY PREFRENCE SHARES?

Financial Institution.

Lending firms.

Other investors through brokerage firm.

HOW TO SELL THESE SHARES?

Through private placement via broker at a negotiated price.

Price one receives depend upon financial state of the

company.

One may have to sell at discount which is negotiated price

not the market price.

Thank
You