Distinction Between Equity Shares And Preference Shares

The main differences between equity shares and preference shares are as follows:

1. Rate Of Dividend

The rate of dividend on equity shares may vary from year to year depending upon the availability of profit. Preference share holders are paid dividend at a fixed rate.

2. Arrears Of Dividend

Equity shareholders can not get the arrears of past dividend. Cumulative preference share holders can get the arrears of past dividend.

3. Redemption

Equity shares can not be redeemed except, under a scheme involving reduction of capital. Preference shares can be redeemed as provided by the articles and terms of issue.

4. Voting

Equity shareholders enjoy voting rights. Preference shareholders do not have the right to participate in the management of the company.

5. Payment Of Dividend

Payment of dividend to equity share is made only after paying to preference shares. Preference shares have a preferential right to receive dividend before equity shares.