Equity Share Vs Preference Share

January 5, 2023

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We will differentiate between the Equity Share Vs Preference Share. Both are source of finance to the company.

Meaning:

Equity Share

Equity share is normally known as common stock which is the main source of finance to the company. IT has voting rights and can not be redeemed.

Preference Share

Preference share is normally known as preferred stock which is issued to raise additional capital. It has features of both equity and debts.

Following is the difference between

Basis of Differences	Equity Shares	Preference Share
1. Rate of Dividend	The rate of dividend on equity shares may vary from year to year and depending upon the profit company earns.	Dividend rate is fixed for preference Shareholders.
2. Bonus Share	Equity Shareholder gets bonus share.	Preference shareholder do not get bonus share.
3. Voting Right	Equity Shareholder enjoy the voting rights to participate in the management of the company.	Preference shareholders do not have right of voting rights.
4. Types of investor	Investors with high risker taker can invest in equity.	Low risk taker investors can invest in preference share.
5. Payment of dividend	Equity shareholder get dividend after payment of dividend to preference share.	Preference shareholder get dividend before equity share.
6. Redeemable	Equity shares cannot be redeemed except under a scheme involving reduction of capital.	Preference shares can be redeemed as provided by the articles and terms of issue.
7. Madate to issue	It is mandatory to issue equity share.	It is not mandatory to issue preference share.

Hence, these are the difference between of these two.