PREFERENCE SHARES

These type of shares are annexed with preferential rights over the equity shares in sharing the benefits organization at the moment of declaration. It is nothing but the combination of both equity shares and debentures; why ? It has some features of equity shares and debenture through redemption. The dividends are normally paid only to the tune of fixed rat which was agreed only at the moment of issue in between the issuing company and investors. The dividends are normally declared by them only subject to the availability of profits.
Type of Preference Shares: The following are the various type of preference shares
which the company normally issues:
Cumulative Preference Shares
The unpaid preference dividends are paid before anything paid to equity shareholders. The unpaid preference dividends are called in other words as Arrearages. The arrearages should not go beyond three years. The arrearages never carry any interest rate. If any
provision is available in the Articles of Association, the arrearages are paid to preference
shareholders at the moment of liquidation.
Non Cumulative Preference Shares
The dividends are paid subject to the availability of profits. If the availability of profits
are not sufficient for the declaration of preference dividend, which do not bear any right to receive. Due to non declaration of dividends during the previous years, these types of shareholders are not entitled to share in the surplus benefits of the company, but they are
having the right to receive the dividend prior to the equity shareholders in any particular
year.
No Rights to Share in the Surplus Profits
l Right to receive the dividend prior to the equity shareholders in any particular year.
The repayment of share capital normally takes place only at the moment of winding
of the companies.
Convertible preference shares: These types of shares are issued by the company
along with the right of conversion to convert the holding into equity shares at the
specified period. Normally, during the process of conversion, the companies charge
higher premium from the shareholders. The voting powers, bonus issue, higher
dividends and so on are subject to the availability of rights out of the conversion.
l Redeemable preference shares: Under this category, the amount of raised capital
is subject to redemption/repayment, which means that when any preference shares
are revealing the definite time period of repayment is known as redeemable
preference shares.
Non redeemable preference shares: These types of preference share never
carry any definite period of repayment but at the moment of winding up the
repayment is made immediately after the creditors.
Participating preference shares: The type of preference shares facilitates the
holders to share the surplus benefits immediately after declaring the dividend benefits
to preference shareholders and equity shareholders. Non Participating preference shares: Except the earlier, all are nothing but non Sources of Long Term Finance participating preference shares in category.

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