These type of shares are annexed with preferential rights over the equity shares in sharing the benefits organization at the moment of declaration. It is nothing but the combination of both equity shares and debentures; why ? It has some features of equity shares and debenture through redemption. The dividends are normally paid only to the tune of fixed rat which was agreed only at the moment of issue in between the issuing company and investors. The dividends are normally declared by them only subject to the availability of profits.
Type of Preference Shares: The following are the various type of preference shares which the company normally issues:
Cumulative Preference Shares
The unpaid preference dividends are paid before anything paid to equity shareholders. The unpaid preference dividends are called in other words as Arrearages. The arrearages should not go beyond three years. The arrearages never carry any interest rate. If any provision is available in the Articles of Association, the arrearages are paid to preference shareholders at the moment of liquidation.
Non Cumulative Preference Shares
The dividends are paid subject to the availability of profits. If the availability of profits are not sufficient for the declaration of preference dividend, which do not bear any right to receive. Due to non declaration of dividends during the previous years, these types of shareholders are not entitled to share in the surplus benefits of the company, but they are having the right to receive the dividend prior to the equity shareholders in any particular year.
No Rights to Share in the Surplus Profits
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