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- 6 Marks
Question
In THREE (3) ways, distinguish between equity shares and preference shares. (6 marks)
Answer
| Basis of Difference | Equity Shares | Preference Shares |
|---|---|---|
| Definition | Equity shares represent the ownership of a company. | Preference shareholders have a preferential right or claim over the company’s profits and assets. |
| Dividend Pay-out | Equity shareholders receive dividends only after the preference shareholders receive their dividends. | Preference shareholders have the priority to receive dividends. |
| Dividend Rate | Varies based on the earnings. | The rate is fixed. |
| Bonus Shares | Equity shareholders are eligible to receive bonus shares against their existing holdings. | Preference shareholders do not receive any bonus shares against their holdings. |
| Capital Repayment | Equity shareholders are paid last. | Preference shareholders are paid before the equity shareholders when the company is winding up. |
| Voting Rights | Equity shareholders enjoy voting rights. | Preference shareholders do not enjoy voting rights. |
| Participation in Management Decisions | Equity shareholders have voting rights, and as a result, they participate in the management decisions. | Preference shareholders do not participate in management operations. |
| Redemption | Equity shares cannot be redeemed. | Preference shares can be redeemed. |
| Convertibility | Equity shares cannot be converted. | Preference shares can be converted to equity shares. |
(3 points @ 2 marks each = 6 marks)
- Tags: Corporate finance, Equity Shares, Preference shares, Shareholder Rights
- Level: Level 1
- Topic: Types of capital and the financing of companies
- Series: JULY 2023
- Uploader: Dotse