Preference shares means those shares that give the right of preference to individuals over equity shareholders concerning dividends or the company’s assets in case the situation of liquidation arises.
Preference shareholders are generally Big Investors, Mutual Funds, or Big Financial Institutions because such shares are issued by the company when they require a large number of funds in less time.
Preference shareholders cannot sell the shares in the stock market as such shares cannot be traded whereas common shares can be sold easily in the stock market. Preference shares come with a maturity period and shareholders get dividends during the life-cycle of those shares, upon maturity, preference shareholders get their principal amount back.
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Methods of selling preference shares
Preference shares can be sold only by following these two methods:
- Call Feature: By this method, the issuing company can call back their preference shares i.e. they can buy their shares from existing shareholders at a pre-decided price.
- Convertible Feature: In this method, preference shares can be converted into common shares after a fixed period.
Tap and know: Types of Preference Shares