Types of Preference Shares
1) Cumulative and Non-cumulative Preference Shares: If a company does not earn sufficient profits during a particular year, dividends on preference shares may not be paid for that year. Bur if preference shares are cumulative, such unpaid dividends are treated as arrears and are carried forward to subsequent years. When the company wants to pay any dividend to equity share holders, it must first pay arrears of such dividend to cumulative preference shareholders. If the company goes into liquidation, arrears of dividend are not payable unless they are either declared or articles of association contain express provisions in this regard. A non-cumulative preference shares is that share where the arrears of dividends do not accumulate. If a dividend is not declared in any year then it lapses. Unless otherwise stated, in the AoA, preference shares are cumulative.
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2) Participating and Non-Participating preference shares
A participating preference share is a share which carries the right of sharing profits left after paying equity and preference dividends at specified rates. A non-participating preference share is that share which does not carry the right of sharing in the surplus after paying specified dividend to equity shareholders, unless otherwise stated in the Articles Preference shares are deemed to be non-participating.
3) Convertible and Non-Convertible preference shares: A convertible preference share is one which can he converted into equity shares. When it cannot be so converted, it is called non-convertible preference shares.
4) Redeemable preference shares: Redeemable preference shares are those which are redeemable within a stipulated period in accordance with the terms of issue. After Amendment made in 1988 such shares must be redeemed within a period of ten years.
1) Cumulative and Non-cumulative Preference Shares: If a company does not earn sufficient profits during a particular year, dividends on preference shares may not be paid for that year. Bur if preference shares are cumulative, such unpaid dividends are treated as arrears and are carried forward to subsequent years. When the company wants to pay any dividend to equity share holders, it must first pay arrears of such dividend to cumulative preference shareholders. If the company goes into liquidation, arrears of dividend are not payable unless they are either declared or articles of association contain express provisions in this regard. A non-cumulative preference shares is that share where the arrears of dividends do not accumulate. If a dividend is not declared in any year then it lapses. Unless otherwise stated, in the AoA, preference shares are cumulative.
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2) Participating and Non-Participating preference shares
A participating preference share is a share which carries the right of sharing profits left after paying equity and preference dividends at specified rates. A non-participating preference share is that share which does not carry the right of sharing in the surplus after paying specified dividend to equity shareholders, unless otherwise stated in the Articles Preference shares are deemed to be non-participating.
3) Convertible and Non-Convertible preference shares: A convertible preference share is one which can he converted into equity shares. When it cannot be so converted, it is called non-convertible preference shares.
4) Redeemable preference shares: Redeemable preference shares are those which are redeemable within a stipulated period in accordance with the terms of issue. After Amendment made in 1988 such shares must be redeemed within a period of ten years.
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