Difference Between Preference Shares and Equity Shares (Companies Act 2013)

Difference Between Preference Shares and Equity Shares

Equity Share

Meaning of Equity Shares:

According to the Indian Companies Act 2013 ” an equity share is share which is not a 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.

Difference between Preference Shares and Equity Share

Preference Shares

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.

Difference between Preference Shares and Equity Share

PointsEquity sharesPreference shares
1) MeaningShares 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 DividendEquity 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 RightEquity 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
their interest.
4) Return of CapitalEquity 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 capitalEquity capital is known as ‘Risk
Preference capital is ‘Safe Capital’
with the stable return.
6) Nature of investorThe 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 valueThe face value of equity shares
is generally Rs 1/- or Rs 10/- it is
relatively low.
The face value of preference shares is relatively higher i.e.
100/- and so on.
8) Right and bonus issueEquity shareholder is entitled to
get bonus and right issue.
Preference shareholders are not
eligible for bonus and right issue.

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