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Preference Shares & Its Types

PREFERENCE SHARES

   

ACCORDING TO SECTION 2(84) OF THE COMPANIES ACT WHICH READ AS UNDER:

“SHARE MEANS A SHARE IN THE SHARE CAPITAL OF A COMPANY,AND INCLUDES STOCK”



MEANING OF PREFERENCE SHARES:-

 A SHARE WHICH HAVE SOME PREFERENTIAL RIGHTS OVER THE OTHER TYPES OF SHARES i.e., enjoy some priority over the equity shares.

A company having a share capital may, if so authorized by its article issue shares subject to the following conditions, namely;

·     The issue of such shares has been authorized by passing a special resolution in the general meeting of the company.

·     No subsisting default in redemption of preference shares or in payment of dividend due on preference shares.



VOTING RIGHTS OF PREFERENCE SHARE HOLDRES:-

·        PREFERENCE SHARE HOLDER SHALL HAVE THE RIGHT TO VOTE ONLY ON RESOLUTION WHICH AFFECT THEIR RIGHT SUCH AS-

a)      RESOLUTION FOR WINDING UP  OF COMPANY.

b)      RESOLUTION FOR REPAYMENT  OR REDUCTION OF CAPITAL.

·        HOWEVER IF DIVIDEND REMAINS UNPAID FOR  2  YEARS OR MORE  PRIOR TO DATE OF COMMENCEMENT OF MEETING , THEY SHALL BECOME ENTITLED TO VOTE  ON EVERY MEETING.

·        PROPORTION OF VOTING RIGHT OF EQUITY  SHARE HOLDER TO VOTING RIGHTS OF PREFERENCE SHARE HOLDERS SHALL BE IN PROPORTION TO THEIR RESPECTIVE SHARE CAPITAL.


Types Of Preference Shares

  • Cumulative Preference Shares- Shares Which Are Assured Of The Dividend Every Year Even If There Is No Profits In A Particular Year.

 

  • Non-Cumulative Preference Shares- Shares Which Do Not Get Any Dividend In Case Company Has Not Earned Any Profit.

 

  • Participating Preference Shares- Shares Which Also Get A Part In The Surplus After They Receive Their Fixed Dividend.

 

  • Non-Participating Preference Shares- Shares Which Are Entitled To Only Get A Fixed Rate Of Dividend.

 

  • Convertible Preference Shares- Shares For Which Holder Gets A Right Of Conversion Thereof Into Equity Shares At A Later Date.

 

  • Non-Convertible Preference Shares- Shares Where Shareholder Does Not Have Any Right Of Conversion Into Equity.

 

 

Disclaimer: 

The contents of this article are solely for informational purpose. It does not constitute any professional advice. The author does not represent that the contents of the article are accurate or complete. Neither the Site/Blog 'Your Instasolv' and the author accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.


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