Week 13 - Preference Shares Flashcards
The nature of the distinction between ordinary and preference shares relates to…
Relates to the rights that attach to the shareholders of each class
What is the preference shareholder’s main benefit over ordinary shareholders?
Is in the right to fixed dividend ahead of any dividend payment made to any other classes of shares
However, as with any other dividend, this may only be paid from…
May only be paid from the company’s profits and hence there is no guarantee to a payment being declared
The company will fix the…
The company will fix the amount of the dividend and this may be on a cumulative or non-cumulative basis
Where may preference shareholders be at a disadvantage to ordinary shareholders?
The company may choose not to provide the holders of preference shares the opportunity to vote in meetings - got no right to influence the decisions of that company
What is the difference between a cumulative or non-cumulative basis dividend?
Cumulative - if one year there is not enough money to pay it, it will get carried over and paid in the next year (if possible). Non-cumulative will not get carried over - only get that year’s allocation of dividends
Where do preference shareholders come in the hierarchy after a company gets wound up?
Preference shareholders may have the right to claim repayment of capital ahead of the ordinary shareholders
What are the first 2 key facts about preference shares?
- gives holders the right to a fixed rate of dividend, specified when shares issued
- represented as percentage of the share value e.g 10% of the nominal value
What are the other 2 key facts about preference shares?
- no right to such dividend unless the company has sufficient distributable profits (cannot sell something to reimburse them - has to be from profit)
- may be cumulative or non-cumulative
