Types of preference shares
- Cumulative: dividend is accumulated if the company does not earn sufficient profit to pay the dividend i.e., if the dividend is not paid in one year it will be carried forward to successive years;
- Non-cumulative: if the company is unable to pay the dividend on preference shares because of insufficient profits, the dividend is not accumulated. Preference shares are cumulative unless expressly stated otherwise;
- Participating: participating preference shares, in addition to their fixed dividend, share in the profits of a company at a certain rate;
- Convertible: apart from earning a fixed dividend, convertible preference shares can be converted into ordinary shares on specified terms;
- Redeemable: redeemable preference shares can be redeemed at the option of the company either at a fixed rate on a specified date or over a certain period of time.