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Difference Between Preference Shares and Equity Shares

Shares represent an ownership unit of the company. And that value can be exchanged by the market forces. Hence, under the companies act 2013, section number 43 company’s share capital is divided into two parts equity shares and preference shares. However, voting rights and the distribution of the dividend amount is the major difference between preference and equity shares. 

However, Both preference and equity shares are different, but when it comes to investing, choosing from them becomes quite difficult. At that time, taking expert advice from the Stock Market Institute in Delhi helped you to make the right decision about investing. Although, learning can help to reduce the hurdles of your investing or trading journey so before investing if learning essential for you then read this blog and learn the each and every difference between preference shares and equity shares.

What Are Equity Shares?

With the motive of raising companie’s capital, these shares are issued by the company. Further, the raised funds are used for the development and the company’s growth. 

Equity shares are considered non-redeemable and serve the best return if one invests in them for the long term. 

Types of Equity Shares. 

Hence, the equity shares are shown on the liability sides of the company’s balance sheets. They are consider ordinary shares, and they do not have any specific types. Although, they have been categorize differently, such as: 

  • Authorized Share Capital
  • Subscribed Share Capital
  • Issued Share Capital 
  • Paid-UP Share Capital 
  • Bonus Share
  • Right Shares
  • Sweat-Equity Shares

What Are Preference Shares?

By issuing the preference shares, companies raised capital, known as preference share capital. 

The dividend rate is fixed for such shares, and they have the right to avail an equal amount of profit or dividend during company liquidation.

However, Preference shareholders also get partial ownership rights, just like equity shares. However, they don’t get any voting right in companies’ important decisions. 

Types of Preference Shares

However, below the list of important preference shareholder types is mention: 

  • Cumulative Preference Shares
  • Non- Cumulative Preference Shares
  • Redeemable Preference Shares
  • Non-Redeemable Preference Shares
  • Participating Preference Shares
  • Non- Participating Preference Shares

Different Between Preference Shares and Equity Shares

ParametersPreference SharesEquity Shares
DefinitionEquity shares show the company’s extent of ownershipOn the other hand, when it comes to profit distribution, preference shares get priority over ordinary shares. 
Rate of DividendBased on earnings, the rates fluctuate. The rate of dividend remains fixed.
Capital Repayment In the end, it gets repaidGet the priority of repayment or get repayment before equity shares.
Voting Rights A shareholder can enjoy the voting rights In the case of preference share, no such kind of voting rights is given.  
RedemptionIt is possible to redeem equity sharesNot possible to redeem
ConvertibilityIn the case of equity shares, conversion is not possibleDifferent Between Preference Shares and Equity SharesIn the case of preference shares, conversion is possible.

Also Read- Tips for Opening Demat Account

The Final Say 

Regarding the difference between preference and equity shares, they both get different kinds of benefits. While equity shares can enjoy voting rights, and on the other hand, preference shares get the priority of paying a dividend. But if you are a beginner and don’t know the right ways of investing, it suggested join Stock Market Course in Delhi and first learn about the stock market and then start investing.

For every stock market aspirant NIWS (National Institute of Wall Street) is here to teach the right ways of investing by using the technical and fundamental analysis. Because Investing without having stock market knowledge can riskier and left you behind with empty pockets, so it is always suggested to learn about stock market first and then put your resources or money in it.

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