HomeFinanceCapital MarketDifference between equity and preference shares Difference between Equity & Preference Shares The following are some of the difference between equity shares and preference shares. Points of difference Equity Shares Preference Shares 1. Term of financing Used as a method of long term financing Used for both long term and medium term financing. 2. Nature of return Rate of return is fluctuating, depending upon the earning Dividend at fixed rate may be paid or accumulated. 3. Owners Equity shareholders are the owners. They have voting rights. These shareholders are not owners. They have no voting rights. 4. Reedeemability They are not subject to redemption during the lifetime of the company. It can be redeemed after achieving the purpose or at the end of a certain period. 5. Type of Investors Suitable for those investors who are adventurous by nature. It has appeal for relatively less adventurous investors. 6. Right of receiving dividend Residual claimant. Rank next to preference shares. Entitled for first preference 7. Right of receiving back invested capital during liquidation. Entitled for first preference Entitled for first preference 8. Financial burden Payment of equity dividends is optional. It is dependent on the discretion of the Board of Directors. Therefore there is no fixed financial commitment. Payment ofprefetence dividend is a fixed financial commitment. 9. Voting rights Enjoy voting rights Do not enjoy voting rights 10. Reduction of capital By reorganization By repayment 11. Denomination Generally of lower denomination. Generally of higher denomination. 12. Type ofinvestors. Even small investors can invest because of the lower denomination. Preferred by medium and large investors. Small investors would find it difficult to invest because of the higher denomination. 13. Borrowing capacity Strengthens borrowing capacity. Reduces borrowing capacity. 14. Capitalization There are chances for over-capitalisaton. Lesser chances for over-capitalization. The above table lists some of the differences between equity & pref shares. Related Posts Derivatives market in India | Gupta Committee recommendations Listing of securities | Conditions | Types | Procedures Issue of Bonus Shares | Causes | Duties of Auditor How to Transfer Shares? Procedure and Steps Involved Share Capital | Classification and Kinds | Methods of Raising No Par Share or Stock | Meaning | Merits | Limitations Tags:capital market, equity share, preference share Leave a Reply Cancel reply This site uses Akismet to reduce spam. Learn how your comment data is processed.