Equity Shares & Preference Shares in detail


Equity shares are long-term financing sources for any company.

These shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds. They are the foundation for the creation of a company.

These shares are issued to the general public and are non-redeemable in nature. Investors in such shares hold the right to vote, share profits and claim assets of a company.



Equity shares have the following main features

  • Equity shareholders have the right to control the affairs of the company.
  • Equity share capital remains with the company. It is given back only when the company is closed.
  • The equity shareholders have the voting rights and can participate in the management of the company.
  • The liability of shareholders is limited to the extent of their investment.
  • These shares are transferable from one person to other.




Preference shares are defined as those shares which are given priority over other equity shares in terms of the payment of dividends.

Also , in the event of liquidation of a particular company, the preference shareholders are paid off before ordinary shareholders.

Capital raised by the issue of preference shares is called preference share capital.



The preference shares have the following main features-


  • Preference shareholders receive dividend payouts in situations where other stockholders may not be receiving any dividends or may receive dividends later.
  • Preference shareholders generally do not enjoy any voting rights.
  • Preference shares resemble debentures as both bear fixed rate of return to the holder. 
  • These shares are convertible into common shares.



The following points highlight the main differences between equity and preference shares –

  1. DIVIDEND RATE : Preference shares have a fixed dividend rate whereas the dividend rate of Equity shares totally depends upon the earnings of the company.
  2. PREFERENTIAL RIGHTS : Preference shares have preferential rights in terms of capital repayment & dividend over equity shares whereas Equity shares do not hold any such preferential rights.
  3. VOTING RIGHTS : Preference shareholders do not have any voting rights whereas Equity shareholders can participate in voting and managerial affairs of the company.
  4. TRADING IN EXCHANGE :- Preference shares are not traded in Exchange whereas Equity shares are traded in Exchange.


Thus, Equity shares and Preference shares are the two types of share that a company issues.  Both the shares have different features and are suitable for investors with different requirements.




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