Types of Preference Shares
(Types of Preference Shares) Preference Shares can be of the following types
(i) Simple Preference Share – On these shares first dividend is paid at a fixed rate as compared to other shares. If the company does not make profit in any year, then no dividend is paid on these shares in that year, they are also called non-cumulative preference shares. The provisions are made in the Articles regarding being cumulative and non-cumulative.
(ii) Cumulative Preference Shares – These are the preference shares which are paid by the company at a fixed rate of dividend. If the company does not have more profit in any financial year or is unable to pay, then the dividend for that year will be paid in the next year.
(iii) Convertible Preference Share – Such Preference
Shares whose holders are given the right to convert their shares into equity shares within a specified period of time are called conversion shares. (iv) Non-convertible Preference Shares Such preference shares which cannot be converted into equity shares are called irrevocable preference shares.
(v) Participating Preference Shares: Such preference shareholders have the right to receive dividends at an indefinite rate as well as share in excess profits (the profits left after passing to common shareholders). Similarly, on the return of capital on the dissolution of the company, the additional share on the capital remaining after returning the capital of the common shareholders
have the right to receive. For this there should be provision in the Articles of Association. (vi) Non-Particular Preference Shares – The shares whose holders do not have the right to receive additional profit and share in additional capital, are called non-participation preference shares.
(vii) Redeemable Preference Shares: A company may issue redemptive preference shares if so provided in its articles. which are released subject to certain conditions. Such shares shall be redeemed only when fully paid up can be redeemed out of profits, out of premium or in accumulated corpus.