Difference Between Preference Shares and Equity Shares as per Companies Act 2013
Meaning of Equity Shares:
According to the Indian Companies Act 2013 ” an equity share is share which is not preference share”. An equity share does not carry any preferential right. Equity shares are entitled to dividends and repayment of capital after the claims of preference shares are satisfied.
Equity shareholders control the affairs of the company and have the right to all the profits after the
preference dividend has been paid.
Meaning of Preference Shares:
A share that carries the following two preferential rights is called ‘Preference Share’:
a) Preference shares have a right to receive dividends at a fixed rate before any dividend is given to equity shares.
b) Preference shares have a right to get their capital returned before the capital of equity shareholders is returned. in case the company is going to wind up.
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- Difference Between Preference Shares and Equity Shares
Difference between Preference Shares and Equity Share
|Points||Equity shares||Preference shares|
|1) Meaning||Shares that are not preference|
shares are called equity shares
i.e. these shares do not have
preferential right for payment of
dividend and repayment of capital.
|Preferences shares are Shares that carry preferential rights as to payment of :|
a) Dividend and
b) Repayment of capital.
|2) Rate of Dividend||Equity shares are given dividend|
at a fluctuating rate depending upon the profits of the company.
|Preference shareholders get|
dividend at a fixed rate.
|3) Voting Right||Equity shareholders enjoy normal|
voting rights. They participate in
the management of their company.
|Preference shareholders do not|
enjoy normal voting right. They
can vote only on matters affecting
|4) Return of Capital||Equity capital can not be returned|
during the lifetime of the company.
(except in case of buyback)
|A company can issue redeemable|
preference shares, which can be
repaid during the lifetime of the
|5) Nature of capital||Equity capital is known as ‘Risk|
|Preference capital is ‘Safe Capital’|
with the stable return.
|6) Nature of investor||The investors who are ready to|
take risk invest in equity shares.
|The investors who are cautious|
about the safety of their investment,
invest in preference shares.
|7) Face value||The face value of equity shares|
is generally Rs 1/- or Rs 10/- it is
|The face value of preference shares is relatively higher i.e.|
100/- and so on.
|8) Right and bonus issue||Equity shareholder is entitled to|
get bonus and right issue.
|Preference shareholders are not|
eligible for bonus and right issue.