Question

Preference shares are those shares which carry certain preferential or priority rights. Which of the following reason justify this statement?

1. At the time of winding up the company, capital is repaid to preference shareholders prior to the return of equity capital.
2. They do not carry voting rights.
3. They are entitled to receive what is left after all prior claims have been satisfied.
4. Dividend at a fixed rate is payable on these shares before any dividend is paid on equity shares.

Options

• I & IV

• II & III

• III & IV

• I & II

Answer 1

I & IV

Explanation:

Preference shares receive a fixed dividend payable before equity and have priority in capital repayment on winding up; these two features give them preferential rights over equity shareholders.