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Distinguish Between Equity Shares and Preference Shares. - Accountancy

Equity Shares and Preference Shares.

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

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Solution

  Equity Shares Preference Shares
1

Meaning

These are the ordinary shares which can claim dividend 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 dividend at a fixed rate.

3

Voting Rights

Equity share holders 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 consent
6

Risk

An element of risk exits in equity share capital as dividend and return of capital is 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 issue, if issued by the company.
8

Redemption

Equity shares are not redeemed during the life time of the company.

Redeemable preference shares are redeemed as per the agreed terms.
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