What Is Preferred Share?

  Author: Kundan Kishore

Preferred shares, as the name suggests, have preference over equity shares or common shares. The preference is mainly for two things.

Investor privileges One is preferred shareholders are paid dividends first out of profits. Second, if the company wound up, preferred shareholders have first claim of what is left after paying all debt and liabilities.

All that glitters is not gold Preferred shares are not all the walk in the park that might appear initially an uninitiated person. Mostly, the dividend rate is fixed and thus preferred stocks lose their potential to appreciate, something common shares can. Secondly, they have different voting rights or reduced voting rights. Thus, they are rarely issued by companies to common public in India