Equity shares are long-term financing sources for any company. These shares are issued to the general public and are non-redeemable in nature. Investors in such shares hold the right to vote, share profits and claim assets of a company. The value in case of equity shares can be expressed in various terms like per value, face value, book value and so on.
Preference shares, more commonly referred to as preferred stock, are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued. If the company enters bankruptcy, preferred stockholders are entitled to be paid from company assets before common stockholders. Most preference shares have a fixed dividend, while common stocks generally do not. Preferred stock shareholders also typically do not hold any voting rights, but common shareholders usually do.
Debenture, is used to issue the loan by government and companies. The loan is issued at the fixed interest depending upon the reputation of the companies. When companies need to borrow some money to expand themselves they take the help of debentures.
- Equity Shares are the shares that carry voting rights and the rate of dividend also fluctuate every year as it depends on the amount of profit available to the company. On the other hand, Preference Shares are the shares that do not carry voting rights in the company as well as the amount of dividend is also fixed.
- One of the major difference between equity shares and preference shares is that the dividend on preference shares is cumulative in nature, whereas the equity share dividend does not cumulates, even if not paid for several years.
Comparison Chart
Payment of dividend : Equity shares
The dividend is paid after the payment of all liabilities.
Payment of dividend : Preference shares
Priority in payment of dividend over equity shareholders.
Rate of dividend : Equity shares
Fluctuating.
Rate of dividend : Preference shares
Fixed.
Voting rights : Equity shares
Equity shares carry voting rights.
Voting rights : Preference shares
Normally, preference shares do not carry voting rights. However, in special circumstances, they get voting rights.
Repayment of capital : Equity shares
In the event of winding up of the company, equity shares are repaid at the end.
Repayment of capital : Preference shares
In the event of winding up of the company, preference shares are repaid before equity shares.
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