Accepting Answers...
   « »

What is the meaning of Equity shares?

What is the difference between equity and preferential shares?


Posted- 2301 days ago
4 Answers

Answer This

A share,which is not preference share is called Equity Share(Section 85 of Companies Act).

Points of Difference       Equity Shares                                   Preference Shares

1.Priority of dividend     Equity shareholders are the last      Priority is accorded to preference share-

                                     to be paid dividend,if there is           holders in the payment of dividend.

                                     any balance of Profit.

2.Predetermined          The rate of dividend is not pre-         The rate of dividend are fixed in the

rate of dividend            determined.                                     Articles of Association.It is predetermined.

3.Refund of share        Equity Share Capital is the last         In case of dissolution of the Company

capital                          to be refunded,in case there is         Preference Share Capital is refunded

                                    surplus to be refunded.                    prior to the refund of equity share capital.

4.Right to vote            Equity shareholders have full            Preference shareholders have right to

                                   right to vote in all circumstances.      vote in special circumstances.

5.Right to partici-        Equity shareholders have every        Preference shareholders do not have

pate in the manage-   right to participate in the man-          right to participate in the management.

ment                           agement.

 
A share,which is not preference share is called Equity Share(Section 85 of Companies Act). Points of Difference Equity Shares Preference Shares 1.Priority of dividend Equity shareholders are the last Priority is accorded to preference share- to be paid dividend,if there is holders in the payment of dividend. any balance of Profit. 2.Predetermined The rate of dividend is not pre- The rate of dividend are fixed in the rate of dividend determined. Articles of Association.It is predetermined. 3.Refund of share Equity Share Capital is the last In case of dissolution of the Company capital to be refunded,in case there is Preference Share Capital is refunded surplus to be refunded. prior to the refund of equity share capital. 4.Right to vote Equity shareholders have full Preference shareholders have right to right to vote in all circumstances. vote in special circumstances. 5.Right to partici- Equity shareholders have every Preference shareholders do not have pate in the manage- right to participate in the man- right to participate in the management. ment agement.
 

Equity shares are the permanent source of capital for a company. The equity shareholders are considered to be the real owners of the business as they are original riski bearer. Voting rights in the meetings of the company is provided to them. They appoint the directors who manages the business. The rate of dividend for such  shares is not pre-determined. It depends on the amount of surplus profit after providing dividend to preference share holders.

Difference between Preference shares and Equity shares:-

 

Basis Equity Shares Preference Shares
1. Participation in management Full right to participate No right to participate
2. Sequence of dividend Dividend is paid last of all Preference is given in providing dividend
3. Sequence of refund of capital On winding up of the company, capital is refunded after preference shares Prefeence is given in refunding the capital
4. Refund of capital during life time Not possibe at all Capital can be refunded in case of redeemable preference shares
5. Permanency of dividend Dividend is uncertain as it fluctuates with the amount of divisible profits decision of board of directors Dividend is certain and fixed
6. Compulsion Compulsory to issue equity shares for the formation of the company It is not compulsory to issue preference shares
7. Commulative nature Dividend does not accumulate. Dividend of previous year is not payable in the current year Dividend of commulative preference shares goes on accumulating and is payable in the year of profit
 
it refers to those shares which do not carry any preferential right in payment of annual divident and repayment of capital in event of liquidation