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All shareholders may have some idea or knowledge of what a share is. The definition can be found in the word itself. Are you aware that each shareholder is actually part-owner of the company?Every company has its own capital structure.
There are many types of share:
Let's now understand and learn the basics of equity and preference shares.
They are two sides to a coin. Each has its advantages and disadvantages. While dividends of preference shares are fixed, the performance of the company is a major determinant of their equity dividends.
Equity market is high-risk. Therefore, equity shareholders are the true bearers of the company as they have a residual part in liquidation. Preference shares have higher earnings claims and a fixed dividend rate.
Let's look at the difference between equity shares and preference shares. Preference shares
A company issues
Preference shareholders will have preferred rights over equity shareholders.
| Basis of Differentiation | Equity shares | Preference shares |
|---|---|---|
| Definition | Also called ordinary shares. As the company raises funds, equity share is its foundation. These cannot be converted into preference shares | These are shares that promise a preference over equity shares. These shares can be converted into equity shares |
| Dividend |
|
|
| Voting rights | Voting rights in general meetings | You do not have voting rights |
| Types | These shares are ordinary shares, and do not have any type of rights. | There are many types of them, including:
|
| Liquidation | Even after the repayment of preference shares, shareholders will retain the right to the asset during liquidation | After the repayment, the shareholders will be entitled to first rights |
| Participation rights | They are responsible for the overall management of the company. | Participation rights in the management of the company are not available to you |
Investors need to be knowledgeable about all forms of investment because there are high risks. The investment golden rule is to buy shares or stocks when they are low and then sell them when they are high. Long-term investments offer a longer return. The ability to invest can lead to huge profits.
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