Preference Shares

 

Preference Shares:-

  Preference Shares are those which carry preference over other classes of shares in the payment of dividend and repayment of capital at the time of winding up.

Types of preference Shares:-

 Preference Shares can be broadly divided into.

1) Redeemable preference Shares.

2)irredeemable preference Shares

3) Cumulative preference Shares

4) Non - Cumulative preference Shares

5) Convertible preference Shares

6) Non - Convertible preference Shares

7) participating preference Shares.

8) Non - participating preference Shares

 

Redeemable preference Shares:-

  These are the shares, the capital of which is refundable after a stipulated period.

Irredeemablepreference Shares:-

These are the shares, capital of which is not refunded during the life time of the company.

Cumulative preference Shares:-

These are the shares on which a fixed rat of dividend is paid out of the current or future profits. If in any year, the company doesn't pay the dividend will accumulate and these arrears have to be paid out of the profits of subsequent years.

Non-Cumulative preference Shares:-

The shareholders of these shares get dividend only out of the current years profit. There is no accumulation of unpaid dividends.

Convertible preference Shares:-

 These are the shares which can be converted into equity Shares after a stipulated period of time.

Non-Convertible preference Shares:-

These are the shares which cannot be converted into equity Shares.

Participating preference Shares:-

Besides  a fixed rate of dividend, the holders of these shares have the right to participate in the surplus profits left after payment of a minimum dividend to the equity shareholders. The unpaid dividend will not be carried forward to the subsequent years.

Non-participating preference Shares:-

 These shares carry a fixed rate of dividend and do not posses any right to participate in the surplus profits.

Shares issued a premium:-

  Every share is of a certain price is known as it's face value. Shares are issued at their face value, then it is paid to be shares issued at par.

 Sometimes a company may issue shares at a premium i.e, at a price higher than its face value.

  The excess of price over face value is known as premium and such an issue is known as shares issued at a premium.

Ex:- if a share of Rs 10 is issued at Rs 2 will be premium. The power of issue shares at a premium need not be given in the Articles of Association. According to section Account know as share premium account. Share premium is capital profit. Hence it is not available for payment of dividend to the shareholders. It appears on the liabilities side of Balance Sheet.