Question

Who are entitled to share the distributable profits of the company after satisfying the dividend rights of the preference shareholders?

• A. Debenture holders
• B. Bond holders
• C. Equity shareholders
• D. Any policy holders

Hint:

After the preference dividend, the rest of the profit belongs to equity shareholders.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
A company has two main classes of shares: preference shares and equity shares. Preference shareholders get a fixed dividend before others. The remaining profit goes to the owners who take the main risk.

Step 2: Key Rule:
After the preference dividend is paid, the balance of distributable profit is shared among equity shareholders. They get a variable dividend that depends on profit.
Debenture holders and bond holders are lenders, not owners, and get interest, not dividend.

Step 3: Check option (1).:
Debenture holders are creditors. They get interest, which is paid whether the company earns a profit or not. They do not share profit. So (1) is wrong.

Step 4: Check option (2).:
Bond holders are also lenders who receive fixed interest. So (2) is wrong.

Step 5: Check option (3).:
Equity shareholders are the real owners. They receive what is left of the distributable profit after preference dividend. So (3) is correct.

Step 6: Check option (4).:
Policy holders are customers of an insurance company. They have no claim on the profit of a company as such. So (4) is wrong.

Final Answer:
Equity shareholders share the remaining profit. Option (3). \[ \boxed{3} \]