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Types of Preference Shares

Preference shares can be of the following types

(i) Simple Preference Shares

 

First of all, dividend is paid at a fixed rate. 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 provision is made in the Articles regarding being cumulative and non-cumulative.

 

(ii) Cumulative Preference Shares – These are the preference shares which are to be 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 Shares – Such preference shares, whose holders are given the right to convert their shares into equity shares, if they so desire, are called convertible shares.

 

(iv) Non-convertible Preference Share – such

 

Preference shares which cannot be converted into equity shares are called irrevocable preference shares.

 

(v) Participating Preference Share – Such preference shareholders have the right to receive dividends at an indefinite rate as well as share in excess profit (the profit left after paying to common shareholders). Similarly, on the return of capital on the dissolution of the company, the common shareholders have the right to receive an additional share on the capital remaining after returning the capital. For this there should be provision in the Articles of Association.

 

(vi) Non-participation shares, the holders of the shares who do not have the right to receive additional profit and share in the additional capital, are called non-participation shares.

 

called 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.

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