What are preferential shares?

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krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

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Shares in the question refers to the shares of joint stock company. These shares are of two basic types - preferential shares and ordinary shares - depending upon the rights of voting in matters related to management of the company, and of receiving dividend. Preferential shares get a preference over the ordinary shares in receiving dividend. However, the preferential shares do not carry any voting rights. The preferential shares receive dividends at a fixed rate, while ordinary stocks receive dividends that is decided from time to time this dividend can be lower or higher than the fixed dividend on the preferential shares. However dividend on ordinary shares can be paid only after that on preferential shares has been paid.

The preferential shares are of two types cumulative and non-cumulative. For non-cumulative preferential shares, no dividend is payable on them when company makes no profit. In the cumulative preferential shares the dividend is payable in all years, irrespective of profit or loss made by the company. However, when the company makes a loss the dividend is not paid immediately. It is paid in subsequent years when the company makes profit. No dividend can be paid on ordinary shares till the total amount of cumulative dividend due is paid on the cumulative preferential shares.

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william1941 | College Teacher | (Level 3) Valedictorian

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Preferential shares are a term used to describe a kind of stock. The owners of preferential stock partially own the business just like common stock owners. Unlike common stock owners preferential stock owners do have the right to vote at shareholder meetings. Common stockholders get a dividend that is dependant of the profit that a company makes and how it intends to use it. Preferential shareholders on the other hand receive a constant divided every year that is fixed and does not fluctuate. Also, when the business is closed down the preferential share holders are paid their share of the value of the business before common shareholders.

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