Preference shares

Preference shares are part of the equity finance of a company. Preference shares usually receive a fixed dividend each year and which, if redeemed, are redeemed at par value. Although the dividend is fixed, it is not guaranteed. However, if the company fails to pay (‘passes’) the preference dividend for the year to ordinary shareholders. Where the preference shares are cumulative, any arrears of preference dividend will also have to be paid prior to the ordinary dividend being paid in any year. Preference shares may be redeemable, when they will be redeemed at a set date. They may also be convertible. Finally, they may be participating, which means that in addition to the fixed dividend, they will receive a variable dividend dependent on the performance of the company. (See also ordinary shares)

 

reference: Business Studies / Accounting. Accounts & Finance Glossary. Jim Riley BA(Hons) MBA FCA // tutor2u

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