Though both equity share and preference share represents share capital for a company but both are different on various grounds, here are some of the differences between the two –
1. As far as dividend and refund of capital in case of winding up is concerned it is the preference shareholders who get paid before the equity shareholders.
2. In case of preference shares rate of dividend is fixed while equity shareholders get dividend on the basis of performance of company, sometimes when company make loss then they are not paid any dividend.
3. While preference shares can be converted into equity shares after some years, if the terms of issue provide so while equity share cannot be converted.
4. Equity shareholders have voting rights and also they have right to participate in the management of the company which is not the case as far as preference shareholders are concerned.
5. Preference shares can be redeemed, while equity share cannot be redeemed, though company can buy back equity shares from the shareholders.
Thus from the above one can see that there are many differences between equity and preference share capital and any investor who is thinking whether to buy equity shares or preference shares of a particular company must look at the above differences and take his or her decision accordingly.