With respect to equity markets, explain what ordinary shares and preference shares are. Contrast preference shares...

With respect to equity markets, explain what ordinary shares and preference shares are. Contrast preference shares versus ordinary shares

Expert Solution

Ordinary shares are equity shares of the company and they are also known as the common stock so those investors who will be holding ordinary shares will be having voting rights, and voting rights will be privileged voting rights because they can be voted at the general meeting.

Preference share represent ownership and it is called preferred stock and it is having both equity as well as debt characteristics which is favoured by investors who have different priorities and interest to safeguard.

Difference between preference shareholders and equity shareholders-

A .preference share carry differential rights whereas ordinary shares will be representing ownership of shareholders in the company.

B. Preference shares have no voting rights except some exceptional circumstances and equity share will be having voting rights.

C. Dividend payment is received in case of preference share and it is fixed in nature where as an ordinary share, it is not mandatory of payment of dividend.

D. Preference share have redemption entitlement, whereas equity share have no redemption entitlement.

E. Preference share can be converted into ordinary shares whereas equity shares cannot be converted into preference shares.

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