question_answer

Explain different types of preference shares which can be issued by a company.

Answer:

Ans.     Different types of preference shares are discussed below:

(a) Cumulative and Non-cumulative: The preference shares which enjoy the right to accumulate unpaid dividends in future years if it is not paid during a year are termed as cumulative preference shares. On the contrary, a non-cumulative preference share is one in which dividend is not accumulated if it is not paid in the particular year.

(b) Participating and Non-participating Preference Shares: Those preference shares which have a right to participate in further surplus of a company's shares which after dividend at certain rate has been paid on equity shares are called participating preference shares. Those preference shares which do not have a right to participate in further surplus of a company's shares which after dividend at certain rate has been paid on equity shares are called non-participating preference shares.

(c) Convertible and Non-convertible Preference Shares: Those preference shares which can be converted into equity shares within a specified period of time are called convertible preference shares. On the contrary, preference shares which cannot be converted into equity shares within a specified period of time are called non- convertible preference shares.