Owners of these kind of shares are at liberty to a fixed dividend or dividend calculated at a fixed rate to be paid periodically. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the company’s creditors, bondholders/debenture holders.

Generally preference share come with lock-in period and only institutions can buy these shares. There are few types of preference shares, namely

• Cumulative preference shares: In this the unpaid dividends will be accumulated and it is paid out before paying dividend to equity share holders.
• Convertible preference shares: After a specific date, these shares will be converted into equity capital of the company.


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