Question

The following statements apply to equity/preference shareholders. Which one of them applies only to Preference Shareholders?

• A. Shareholders bear risk of the loss of investment.
• B. Shareholders bear the risk of no dividends in the event of losses.
• C. Shareholders usually have the right to vote.
• D. Dividends are usually a fixed amount in every financial year.

Answer 1

The correct option is D Dividends are usually a fixed amount in every financial year.

The preference shares are the ones which preferential rights like prior payment of dividend and return of capital.

The fourth statement is applied for preference shares because the company has to pay a fix divided into such shares and it is irrespective of the profits. The dividend also remains the same for every financial year and the company has a fixed liability to pay the interest and the amount of profits cannot define the payment of interest on preference shares.