Capital Sources for Business: Preference Shares
Preference shares are those which carry priority rights in regard to the payment of dividend and return of capital and at the same time are subject to certain limitations with regard to voting rights. The preference shareholders are entitled to receive the fixed rate of dividend out of the net profit of the company. Only after the payment of dividend at a fixed rate is made to the preference shareholders, the balance of profit will be used for paying dividend to ordinary shares. The rate of dividend on preference shares is mentioned in the prospectus. Similarly in the event of liquidation the assets remaining after payment of all debts of the company are first used for returning the capital contributed by the preference shareholders. Types of Preference Shares Cumulative and non-cumulative: In the case of cumulative preference shares, the unpaid dividend goes on accumulating until paid. The unpaid dividends Continue reading