Go Through Difference between Equity Share and Preference Share!
Shares are the major source of finance. While investing money, people look for shares available and their returns so that they can make maximum profits from these. The basic knowledge about shares is necessary to get the money invested in the way you want. However, many among you are unaware of the fact that shares also have different types, i.e., equity shares and preference shares. You must know the difference between equity share and preference share as both have their plus and minus points and can leave great bearing on your returns.
Before going through the difference between equity and preference shares, let us study what they actually mean. Have a look!
Equity Shares and Preference Shares
Both of these shares are two sides of one coin complementing their own positive and negative side. Both are the smallest unit of capital. However, their characteristics make the basis for equity shares and preference shares difference. The people investing in equity shares are known as equity shareholders and those who invest in preference shares are known as preference shareholders.
Equity shareholders have some special rights in the company in which they invest their money. However, preference shareholders don’t get such rights. Dividends, risks, payment of capital, and many other aspects make the basis for the difference between preference and equity shares.
Difference between Equity Share and Preference Share
Equity shares are ordinary shares that are the foundation of a firm or company. It raises funds in abundance. It represents the shareholders’ ownership part of the company.
Preference shares promise preference to the holder over equity shares in terms of repayment of capital and payment of dividends.
Equity shares can’t be converted into preference shares, but preference shares can get converted into equity shares.
Another point to distinguish between equity share and preference share is the payment of dividends. Equity shareholders get dividends after the payment of each liability. Preference shareholders get payment of dividends first before equity shareholders get. Dividends are fixed in case of preference shares, but equity shareholders don’t have fixed dividends.
Repayment of Capital
Equity shareholders don’t get preference in repayment of capital in case of winding up of the company. Firstly all liabilities are paid off; then capital is repaid. However, preference shareholders get preference for repayment of capital over equity shareholders.
Yet another point of difference between preference share and equity shares is voting rights./ equity shares carry voting rights in company meetings. However, preference shares don’t have any right to vote in the company.
Arrears of Dividend
Equity shares don’t have any right to get arrears of dividends. But preference shares have all the rights to get current year and previous year dividend. However, non-cumulative preference shares don’t have such rights.
Rate of Dividend
The preference shares dividend is fixed. However, the equity share dividend can fluctuate based on the company’s profits
After going through each difference between equity share and preference share, you can easily differentiate the two. Both of these have their own merits and demerits. So, you can analyze them deeply and go through each difference between equity share and preference share one after another and choose where you want to put your money