Question

What do you mean by ‘Preference Shares’?

Hint:

Two preferences: fixed dividend first, and capital repayment first — both ahead of equity shareholders.

Answer 1

Step 1: State the defining feature:
Preference shares are shares that carry two preferential rights over ordinary equity shares: a fixed rate of dividend paid before any equity dividend, and priority in the return of capital when the company winds up.

Step 2: Contrast with equity shares:
Unlike equity shares, whose dividend fluctuates with company profit and who get repaid only after everyone else, preference shareholders receive a stable, pre-fixed return but generally have no voting rights in normal company matters.

Final Answer:
Preference shares are shares carrying a preferential right to a fixed dividend and to repayment of capital before equity shareholders, on winding up.