Definition Of Equity And Preference Shares

Equity share and preference share are the two types of share that a company issues.

Definition of equity and preference shares. Equity share is an ordinary share. The company has the following advantages by issue of preference shares. Equity shares are the shares that carry voting rights and the rate of dividend also fluctuate every year as it depends on the amount of profit available to the company. The upside to equity shares is that they usually outperform preference shares and bonds as well as offering a higher return in the long term.

Preference shares are typically less volatile than common shares and offer investors a steadier flow of dividends. Preference shares are an optimal alternative for risk averse equity investors. The dividend payable on preference shares is fixed that is usually lower than that payable on equity shares. Find out more about equity shares or ordinary shares.

Preference share experience the perquisites of the dividend distribution first. On the other hand preference shares are the shares that do not carry voting rights in the company as well as the amount of dividend is also fixed. This makes equity shares riskier than preferred shares. Difference between equity shares and preference shares.

Thus they help the company in maximizing the profits. The advantages of preference shares are as follows. These non participating preference shares do not enjoy such rights of participation in the profits of the company. A share to be preference share must have two preferential rights.

Now that you know the equity shares meaning it is time to learn more about shares trading. Dividend on preference shares has to be paid at a fixed rate and before any dividend is paid on equity shares. The equity stockholders get the opportunity to cast their vote in major business decisions. Preference shares that can be converted into equity shares within a specified period of time are known as convertible preference shares.

The shares which can be issued by a company are of two types 1.