| Points |
Equity Shares |
Preference Shares |
| 1. Meaning |
Shares that are not preference shares are called equity shares i.e. these shares do not have the preferential rights for payment of dividends and repayment of capital. |
Preferences shares are shares that carry preferential rights as to payment of:
- Dividend and
- Repayment of capital.
|
| 2. Rate of Dividend |
Equity shares are given dividends at a fluctuating rate depending upon the profits of the company. |
Preference shareholders get dividends at a fixed rate. |
| 3. Voting Right |
Equity shareholders enjoy normal voting rights. They participate in the management of their company. |
Preference shareholders do not enjoy normal voting right. They can vote only on matters affecting their interest. |
| 4. Return of Capital |
Equity capital can not be returned during the lifetime of the company, (except in case of buyback). |
A company can issue redeemable preference shares, which can be repaid during the lifetime of the company. |
| 5. Nature of capital |
Equity capital is known as ‘Risk Capital’. |
Preference capital is ‘Safe Capital’ with a stable return. |
| 6. Nature of investor |
The investors who are ready to take risks to invest in equity shares. |
Investors who are cautious about the safety of their investment invest in preference shares. |
| 7. Face Value |
The face value of equity shares is generally ₹ 1/- or ₹ 10/- it is relatively low. |
The face value of preference shares is relatively higher i.e. ₹ 100/- and so on. |
| 8. Right and bonus issue |
Equity shareholder is entitled to get bonus and right issue. |
Preference shareholders are not eligible for bonuses and right issues. |
| 9. Capital appreciation |
The market value of equity shares increases with the prosperity of the company. It leads to an increase in the value of shares. |
The market value of preference shares does not fluctuate, so there is no possibility/cheques of capital appreciation. |
| 10. Risk |
Equity shares are subject to higher risk. |
Preference shares are subject to less risk. |
| 11. Types |
Equity shares are classified into:
- Equity shares with normal voting rights.
- Equity shares with differential voting rights.
|
Preference shares are classified as:
- Cumulative Preference Shares
- Non Cumulative Preference Shares
- Convertible Preference Shares
- Non Convertible Preference Shares
- Redeemable Preference Shares
- Irredeemable Preference Shares
- Participating Preference Shares
- Non Participating Preference Shares
|
