Question

Why are participating preference shares so called?

Answer 1

Participating preference shares are called so because they allow shareholders to participate in the surplus profits of the company in addition to receiving their fixed rate of dividend.

In other words, after the company has paid the fixed dividend to preference shareholders and the usual dividend to equity shareholders, if there are any remaining profits, participating preference shareholders are entitled to a share in these additional profits.

Thus, the term “participating” refers to their right to participate in the surplus profits of the company along with equity shareholders.