Question

What preferential right are enjoyed by preference shareholders? Explain.

Answer 1

The following preferential rights are enjoyed by preference shareholders

(i) Receiving a fixed rate of dividend, out of the net profits of the company, before any dividend is declared for equity shareholders.

(ii) Preference over equity shareholders in receiving their capital after the claims of the company's creditors have been settled, at the time of liquidation.

(iii) In case of dissolution of the company, preference share capital is refunded prior to the refund of equity share capital.