Question

What preferential rights are enjoyed by preference shareholders? Explain.

What are the preferential rights given to preference shareholders over the equity share holders?

Answer 1

Preference shares are shares that provide the shareholders preferential rights regarding the repayment of capital and payment of dividends after a certain specified period of time. Preference shares are issued by a company to raise capital, and the repayment to preference shareholders is made in accordance with the terms specified in Section 80 of the Companies Act, 1956. Preference shareholders are entitled to the following preferential rights.

1. Preference shares entitle their holders the right to receive dividends of a fixed amount or at a fixed rate.
2. Preference shares entitle their holders the preferential right to receive repayment of capital invested by them before their equity counterparts at the time of winding up of the company.