The main difference between preference shares and ordinary shares is that preference shares provide fixed dividend rates and priority in asset liquidation, whereas ordinary shares offer variable dividends and voting rights but come with a higher risk and potential for greater returns.
Contents:
- What Is Ordinary Shares And Preference Shares?
- Difference Between Ordinary And Preference Share
- Preference Shares Vs Ordinary Shares – Quick Summary
- Difference Between Ordinary And Preference Share – FAQs
What Is Ordinary Shares And Preference Shares?
Ordinary shares represent equity ownership in a company. They grant shareholders voting rights and dividends that vary based on company performance. On the other hand, preference shares are a type of stock with fixed dividends and priority over ordinary shares in asset distribution.
Ordinary or common shares are the standard form of stock in a company. Ordinary shareholders benefit from voting rights and potential dividends, but dividends are not guaranteed and depend on profitability. For example, owning shares in a publicly traded company like Reliance Industries allows voting in shareholder meetings and receiving dividends if declared.
Whereas, preference shares provide dividends at a fixed rate and have priority over ordinary shares for dividend payments and asset liquidation but usually don’t have voting rights. For instance, if a company issues preference shares with a 6% dividend rate, shareholders receive this dividend before any distribution to ordinary shareholders.
Difference Between Ordinary And Preference Share
The main difference between ordinary and preference shares is that ordinary shares come with voting rights and offer dividends that vary based on the company’s financial performance. In contrast, preference shares provide fixed dividends and have priority over ordinary shares in asset distribution, but usually do not grant voting rights.
| Feature | Ordinary Shares | Preference Shares |
| Dividend Type | Variable dividends based on company profits | Fixed dividends, offering predictable income |
| Voting Rights | Holders have voting rights in company decisions | Typically do not have voting rights |
| Priority in Dividends | Receive dividends after preference shareholders | Receive dividends before ordinary shareholders |
| Priority in Liquidation | Lower priority in asset distribution upon liquidation | Higher priority over ordinary shares in asset distribution |
| Risk Profile | Higher risk due to variable dividends and market volatility | Lower risk with stable returns |
| Investment Return | Opportunity for significant capital gains with high risk | Steady income stream with lower growth potential |
| Suitability | Suitable for investors seeking growth and control | Ideal for investors prioritizing income stability and safety |
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Preference Shares Vs Ordinary Shares – Quick Summary
- The main difference between preference shares and ordinary shares is that preference shares prioritize dividend payments and asset distribution, while ordinary shares offer voting rights and variable dividends.
- Ordinary shares represent equity ownership with voting rights and performance-based dividends. For example, shareholders of a company like Reliance Industries can vote and receive dividends if declared.
- Preference shares offer fixed dividends and have a higher claim in asset distribution but typically lack voting rights. An example is a company issuing preference shares with a 6% fixed dividend rate.
- The key difference between ordinary and preference shares is that ordinary shares offer variable dividends and voting rights, while preference shares provide fixed dividends and asset prioritization without voting rights.
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Difference Between Ordinary And Preference Share -FAQs
1. What is the difference between ordinary and preference shares?
The main difference between ordinary and preference shares is that ordinary shares provide voting rights and dividends that fluctuate with company performance, whereas preference shares offer fixed dividends and higher claim over assets and earnings.
2. What is an example of an ordinary share?
An example of an ordinary share is a share of Tata Consultancy Services, where shareholders receive dividends based on company profits and can vote on corporate matters.
3. What are the two types of ordinary shares?
Two main types of ordinary shares are voting shares, which allow shareholders to vote on corporate matters, and non-voting shares, which may offer higher dividends but no voting rights.
4. Do preference shares get dividends?
Yes, preference shares typically receive fixed dividends before ordinary shareholders and have a higher claim on company assets, ensuring more predictable income.
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:
