Preference shares are entitled to a fixed rate dividend/ amount of dividend. The rate of dividend on equity share depend upon the amount of net profit available after payment of dividend to preference shareholder and the fund requirement of the company for future expansion etc. Preference dividend is Deemed to be due and in arrear when no preference dividend has been paid irrespective of declared or not, by the last day it is contractually payable, where no specific contractual basis exist, on the Day following and of the period it is payable.
Preference share can be classified as-
- Cumulative preference share- when a company if in any year does not an adequate profit, dividend on preference share may be paid for the year. In such case unpaid dividend is treated as arrears. the arrears will accumulate and they will payable out of the profit of the rest year. Dividend on the equity shares can be paid when such area payment is made.
- non Cumulative preference share- those shareholder which have no right of Cumulative preference shares.
- convertible preference share- those share which can be converted into equity share after a specific time allotted them.
- non convertible preference share- those shareholder which cannot be convert into equity share.
- redeemable preference share- those shareholder which can be redeemed after a specified time.
- participating preference share - those share holder which is entitled to participate in that surplus of profit which remain even after the payment of dividend to equity shareholders.
- non-participating preference share- those share holder have no right to participate in the surplus of profit or the assessed which remain after the the payment to equity shareholder.
