Question

Distinguish between equity shares and preference shares.

State three differences between equity and preference shares.

Give five differences between equity share and preference share.

Answer 1

Sr. No.	Point of Distinction	Equity Shares	Preference Shares
1.	Nominal value	Generally low.	Generally high.
2.	Right to dividend	After the preference dividend is paid.	Priority over equity shares.
3.	Refund of capital	After preference shares are paid.	Priority over equity shares.
4.	Rate of dividend	Fluctuates with profits.	Generally regular and fixed.
5.	Voting rights	Full voting rights.	No voting rights except when dividends are unpaid for two or three years.
6.	Degree of risk	Sink or swim with the company.	Relatively less risk.
7.	Redemption	Not repayable during the lifetime of the company.	It may be redeemed after a fixed period or at the option of the company.
8.	Appeal	Attractive to bold and adventurous investors.	Appeals to conservative and orthodox investors.
9.	Convertibility	May be convertible into equity shares.	Not convertible into preference shares.
10.	Arrears of dividend	May accumulate.	Never accumulate.
11.	Order of refund	Before equity shares are paid.	After preference shares are paid.
12.	Further issue of shares	Not entitled to issue of right shares or bonus shares.	Entitled to issue of right shares and bonus shares.