Question

Unless otherwise stated, a preference share is always deemed to be :

• A. Cumulative, participating and non-convertible
• B. Non-cumulative, non-participating and non-convertible
• C. Cumulative, non-participating and non-converitable
• D. Non-cumulative, participating and non-convertible

Answer 1

The correct option is C Cumulative, non-participating and non-converitable

• Preference shares are always cumulative, non-participating and non-convertible unless otherwise stated.
  
• The dividend payable on preference shares goes on accumulating till it is fully paid off. If dividend at the fixed rate cannot be paid in any year due to inadequate profits, arrears of dividends will accumulate and will have to be paid out of profits of future years.
  
• When a share cannot be converted into equity share then it is said to be non-convertible preference share.
  
• The holders of preference shares are entitled to a fixed dividend and not in the surplus profits. If the Articles and Memorandum are silent and there is no clear provision in the terms of issue of these shares, all preference shares are deemed to be non-participating preference shares.