Difference Between Equity Shares and Preference Shares. a share as “a share in the share capital of a company, and includes stock except where a distinction between stock and shares is expressed or implied.”
- (a) A share is a right to a specified amount of the share capital of a company, carrying with it certain rights and liabilities while the company is a going concern and in its winding up. (Halsbury's Laws of England)
- (b) A share is the interest of a shareholder in the company measured by a sum of money, for the purposes of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se. [Borland’s Trustee v. Steel Bros., (1901)].
Preference Shares:
Preference shares are those which have a 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.Equity Shares
Difference Between Equity Shares and Preference Shares
BASIS | EQUITY SHARES | PREFERENCE SHARES |
---|---|---|
Meaning | Equity shares are the ordinary shares of the company representing the part ownership of the shareholder in the company. | Preference shares are the shares that carry preferential rights on the matters of payment of dividend and repayment of capital. |
Payment of dividend | The dividend is paid after the payment of all liabilities. | Priority in payment of dividend over equity shareholders. |
Repayment of capital | In the event of winding up of the company, equity shares are repaid at the end. | In the event of winding up of the company, preference shares are repaid before equity shares. |
Rate of dividend | Fluctuating. The rate of dividend on equity shares depends upon the amount of profit available and the funds requirements of the company for future expansion etc. | Fixed Rate of dividend |
Redemption | Equity Shares are always irredeemable. They are payable only at the time of liquidation | Preference shares are always redeemable. Maximum tenor cannot exceed 20 years. |
Voting rights | Equity shares carry voting rights. | Normally, preference shares do not carry voting rights. However, in special circumstances, they get voting rights. |
Convertibility | Equity shares can never be converted. | Preference shares can be converted into equity shares. |
Accumulation of dividend | Dividend cannot be accumulated in any case | Dividend gets accumulated if not paid. |
A company may issue rights shares or bonus shares to the company’s existing equity shareholders. | No bonus shares/right shares are issued to preference share holders. |
Equity Share Capital and Preference Share Capital
‘‘equity share capital’’, with reference to any company limited by shares, means all share capital which is not preference share capital; ‘‘preference share capital’’, with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to -- (a) payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and
- (b) repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company;
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