Question

Discuss the types of Preference shares.

Hint:

Preference shares offer various benefits like priority dividends and convertibility, depending on the type issued.

Answer 1

Step 1: Definition of preference shares.
Preference shares are a type of equity share that gives the shareholder priority over common shareholders in terms of dividend payments and in the event of liquidation.
Step 2: Types of Preference Shares.
1. **Cumulative Preference Shares:** These shares entitle the shareholder to receive dividends that accumulate if not paid in one year. Any missed dividends are carried forward to be paid in subsequent years.
2. **Non-Cumulative Preference Shares:** These shares do not carry forward any unpaid dividends. If the dividend is not declared in any year, the shareholder loses the right to it.
3. **Convertible Preference Shares:** These shares can be converted into equity shares of the company at a predetermined price and date. 4. **Non-Convertible Preference Shares:** These cannot be converted into equity shares and are redeemed at the end of the specified period.
5. **Redeemable Preference Shares:** These shares are issued with a provision for the company to redeem (buy back) them after a certain period.
6. **Irredeemable Preference Shares:** These shares are not redeemable during the lifetime of the company and are paid back only in the event of liquidation.
Step 3: Conclusion.
Preference shares are offered with various rights and terms, allowing companies to meet specific financial needs and attract investors. Final Answer: \[ \boxed{\text{Types of preference shares include cumulative, non-cumulative, convertible, non-convertible, redeemable, and irredeemable.}} \]