Cumulative Redeemable Preference Shares

Cumulative Redeemable Preference Shares Preference shares do not participate in a company’s profits in the same way as equity shares do in that their rate of dividend is fixed (now 15%). If the company makes no profit or inadequate profit, dividend to equity shareholders being discretionary, can be skipped, but the preference shareholder’s dividends are due and are accumulated till such time as the company can declare a dividend, when the preference shareholders’ accumulated arrears of dividend have to be paid first, before any distribution can be made to equity shareholder. Preference shareholders cannot vote in the company’s resolutions, but in case of liquidation of the company their claims are settled before equity shareholders. Unless a clause of convertibility is attached to preference shares, the company need not issue equity shares in lieu; it may simply pay off the creditor.

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