What are preference shares?

1. Preference shares are a kind of equity shares that do not have the same voting rights as ordinary equity shares.

2. Unlike ordinary shares, preference shares pay a pre-defined rate of dividend.

3. The dividend is payable after all other payments are made, but before dividend is declared to equity shareholders.


4. Preference shares combine features of equity and debt, they carry equity risk as the principal is not secured and they give out dividend similar to an interest.

5. Preference shares can be convertible into ordinary shares as well as nonconvertible.


(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)