Question

Distinguish Between Equity Shares and Preference Shares.

Give any two differences between 'Preference Shares' and 'Equity Shares'.

Write any three points of difference between an equity share and a debenture.

Answer 1

Sr. No.	Basis	Equity Shares	Preference Shares
1	Meaning	These are the ordinary shares which can claim dividends and return of capital only after payment to others.	These are the shares which enjoy preference over equity shares in case of dividend and return of capital.
2	Rate of Dividend	Equity shares are paid dividend at fluctuating rate	Preference Shares are paid dividends at a fixed rate.
3	Voting Rights	Equity shareholders enjoy normal voting rights, through which they participate in the management of the company	Preference shareholders enjoy restricted voting rights. They can vote only on those matters which affect their interest directly
4	Face Value	Equity shares are of low face value, i.e., Rs. 10/- or even less	Comparatively, preference shares are of high face value i.e. Rs 100/-
5	Market Value	Market value of equity shares changes as per company’s financial positions and profitability.	Market value of preference shares remains constant.
6	Risk	An element of risk exists in equity share capital as dividend and return of capital are uncertain.	Investment in preference shares is relatively safe due to preferential treatment in case of dividend and return of capital
7	Right Issue/Bonus shares	Equity shareholders are eligible for bonus shares, if issued by the company	Preference Shareholders are not eligible for bonus shares/right issues if issued by the company.
8	Redemption	Equity shares are not redeemed during the lifetime of the company.	Redeemable preference shares are redeemed as per the agreed terms.