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Preference shares are considered safer in investment. As compare to equity shares. They receive dividend at a fixed rate. Preference shareholder are like creditors. They have no voting right.

Benefits of investing in preference share capital

Regular fixed income : The culminative preference share investors even in case of absence of profits for the company get a regular hold of profits.

Voting rights in company : Voting rights are exerted by the investors in cases relating to the safety of interests. The interests of the preference shareholders are thus safeguarded.

Less chance of losing capital : The preference shareholders possess the preference rights of the repayment of their capital as a result of which there are less.

Having proper security : Preference shareholders possess proper security in case of their shares in cases when the company fails to generate profits.

Now let's check out some of the drawbacks of preference share capital

Less fixed income: The preference shareholders do not possess the voting rights in the personal matters of the company. There is thus no interference in general by the preference shareholders.

Absence of financial burden: As a result of the issuance of preference shares, because dividends are paid only in the presence or profits; absence of profits means absence of dividends.

Capital structure flexibility: By means of issuing redeemable preference shares, flexibility in the company’s capital structure can be maintained because redeemable preference shares can be redeemed under the terms of issue.

A share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value, and the total of the face value of issued shares represent the capital of a company, which may not reflect the market value of those shares.

There are two types of shares equity shares and then preference shares.

(a) Equity shares : Equity shares represent the ownership of a company. They have right to vote and right to participate in the management.

Some features of equity shares

(i) The equity shareholders are the primary risk bearers as they provide fixed capital.

(ii) The equity share capital is not reedemable during the life-time of the company.

(iii) Returns are uncertain as the rate of dividend is not fixed.

(iv) Equity shareholders can participate in the company’s matter.

(b) preference shares : Preference shares are considered safer in investment. As compare to equity shares. They receive dividend at a fixed rate. Preference shareholder are like creditors. They have no voting right.

Some features of preference shares

(i) Preference shares are long-term source of finance.

(ii) The dividend payable on preference shares is generally higher than debenture interest.

(iii) Preference shareholders get fixed rate of dividend irrespective of the volume of profit.

Types of preference shares:

Cumulative preference shares.

Non cumulative preference shares.

Participating preference shares.

Non participating preference shares.

Convertible preference shares.

Non Convertible preference shares.

Equity shares are the shares of the companies issued to the public for long term financing. The investors of the equity shares have the right to vote members such as directors, share the profits and claim the assets of the company. As much as there benefits in equity shares, there are disadvantages from company’s perspective.

Advantages of Equity share –

• As the investors invest for long term, equity share becomes the permanent source of capital to the company.
• In equity share, it’s not always mandatory to repay interest or investment in initial days. Company can give dividends to investors but if it is in loss, company might skip it. Company can decide how much dividend to be given. This increases the spending flexibility & profit.
• Equity shares help in lowering the risk of bankruptcy. In case, company suffers a loss or recession, the investors can’t compel to return their investment. They need to wait for the company to be back on the track again. While, in case of debt, company suffers loss & is unable to repay, it suffers bankruptcy.

Disadvantages of Equity share –

• As much as shares are sold, we lose the control over the company as equity shares come with sharing profit & giving part of control to the investors.
• It takes a lot of time & efforts to get the investors as they are always looking for a company which is earning a good profit.
• The fluctuations in market put the company in ups & downs... (More)