Updated on March 7, 2023
Preferred Shares or Preference shares are shares of a company which are given priority over others by the company in the process of dividend payout as well as in the event of liquidation. This means that whenever the company announces dividends out of its earnings surplus, the preferred shareholders will be the first to receive such dividend payment. In case the company is liquidated, preference shareholders are paid before any other type of shareholders. Preference shareholders do not have voting rights and thus cannot participate in any decision making process related to the company.
Benefits of the Preference Shares
The risk of business closure is a big risk while investing in a company. Preference shares safeguard the investors by ensuring that the preference shareholders get a claim on company assets over other shareholders.
Preference shares come with the benefit of regular dividend returns. The dividends are paid to them regularly and irrespective of whether paid to others or not. This is almost like regular income for preferred shareholders.