Preference Shares
Preference Shares
ADVERTISEMENTS:
ADVERTISEMENTS:
(a) The earnings per share of existing preference shareholders are not
diluted if fresh preference shares are issued.
(c) Preference shareholders do not have any voting rights and hence
do not affect the decision making of the company.
ADVERTISEMENTS:
(e) Preference shareholders do not enjoy the voting rights and hence
their fate is decided by the equity shareholders.
Cumulative preferred stock includes a provision that requires the company to pay
shareholders all dividends, including those that were omitted in the past, before
the common shareholders are able to receive their dividend payments.
Unpaid dividends are assigned the moniker "dividends in arrears" and must
legally go to the current owner of the stock at the time of payment. At times
additional compensation (interest) is awarded to holder of this type of preferred
stock.
Participating preferred stock provides its shareholders with the right to be paid
dividends in an amount equal to the generally specified rate of preferred
dividends, plus an additional dividend based on a predetermined condition. This
additional dividend is typically designed to be paid out only if the amount of
dividends received by common shareholders is greater than a predetermined
per-share amount. If the company is liquidated, participating preferred
shareholders may also have the right to be paid back the purchasing price of the
stock as well as a pro-rata share of remaining proceeds received by common
shareholders.