Preference Shares or Stock Units

Preference Shares or Stock Units

Preference shares or stock units

(1)They are certificates containing the promise, on behalf of the company, of a fixed rate of interest, e.g., 5%, 7% 10%.

(2)They have prior claim to dividend over the ordinary shares.

(3)in the event of the winding up of the company, they are repaid prior to (have preference over) ordinary shares.

(4)Cumulative preference carry the right to have dividend, if not paid in one year because the company made a loss, paid out of the following or later years' profits (i.e., dividend accumulates). Arrears of cumulative preference must be cleared before any dividend on the ordinary capital can be paid.

Non-cumulative preference, if dividend is not paid in any one year, carry no cumulative right for dividend to be paid at a later date, and the company has no further liability for the year of non-payment.

(5)Redeemable preference may be redeemed (repaid) at a given price on or after a given date or dates.

(6)Participating preference carry the right, after receiving their fixed interest (dividend), to participate in a further payment after the ordinary or other later ranking capital has received a certain amount of dividend.

(7)First and second preference. One preference may have the same fixed rate of interest as another in the same company, but has the prior claim to interest or repayment, and to differentiate between the two types of share they would be known as first and second preference respectively, the former carrying the prior claim.

(8)Voting (carrying voting power). Generally can only exercise voting rights when dividend is in arrears.

Preference shares, being unsecured, do not enjoy the relative safety of debentures (secured loans). Having a fixed rate of dividend, and with continuing inflation, preference shares do not possess the long-term potentialities of income and capital appreciation of ordinary shares.


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