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Question
Justify the following statement.
Equity shares get last priority in dividend.
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Solution
- A dividend is a share in the distributable profits of the company to which the shareholder is entitled when it is formally declared by the company.
- The dividend is payable only to the registered shareholders of the company.
- Preference shareholders are entitled to dividends before it is paid to the equity shareholders as per the terms of the issue of preference shares.
- Equity shareholders will get dividends from residual profits. i.e. after paying to preference shareholders and arrears of dividend on cumulative preference shares.
- Thus, Equity shares get the last priority in dividends.
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