Now a day’s most of the people are interested in investing money in share markets, to gain money in a double the amount in a short period. Basically share is the definition in the word itself and the shareholders are a part owner of that company. The major similarities in the equity share and preference shares are both are owned capital of the company and which is defined in section 85 of the Indian companies’ act 1956.
What are equity shares?
Equity shares which are the ordinary shares of the company and the holders of the equity shares are the real owners of that particular company that is which can also be termed as the number of shares which are held by them is the portion of their ownership in that company.
These equity shareholders have some privileges in that company like they get voting rights at the general meeting and the important one is they can appoint or remove the directors and auditors in that company. And they also have the right to get the profits of that company that is when more profits are gained the more is there dividend and it is also in vice versa. So the profit is not fixed therefore the amount of the dividends is also not fixed here.
What are preference shares?
In this preference shares the name itself suggests that which gets the precedence over equity shares like distribution of dividend at a fixed rate and which is the repayment of the capital in the event of liquidation of the company.
The preference shareholders there also the part owners of the company which is termed in equity shareholders but they don’t have the voting rights. In preference shareholders, they get Right to vote on the matters where which will directly affect their rights like the resolution of winding up the company or in some cases of the reduction of capital income.
Difference between Equity Shareholders and Preference Shareholders
Shareholders in equity shares they cannot be converted into preference shareholders where different shareholders can be converted into equity shareholders.
Equity shares which are irredeemable whereas when focusing on preference shares they are redeemable.
The next one of the major differences is Right to vote equity shares have the right to vote when the preference shareholders don’t have the voting rights.
In a financial year, the dividend on equity shares which is not declared and paid then the dividend for the year will have lapsed, on the other hand during the same situation the preference shareholders dividend get accumulated which is paid in the next financial year except in the case of non-cumulative shares.
Conclusion
Individuals having any idea to invest money in equity shares and preference shares can process it very easily, but the important note is that you should gain complete knowledge about the stock market only when there is a lot of chances where you may suffer losses also, so during that time you can manage the situation.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin