Preference Shares

Preference shares, also known as preferred stock, are a type of equity security that gives shareholders a higher claim on a company’s assets and earnings than common shares. Preference shareholders typically receive fixed dividends before any dividends are paid to common shareholders. They also have priority over common shareholders in the event of liquidation but usually lack voting rights. Preference shares can be cumulative (unpaid dividends accrue) or non-cumulative.

Example

A company issues preference shares with a 6% fixed dividend, meaning that shareholders receive 6% of the share’s par value annually before common shareholders receive any dividends.