Preference share can be defined as those shares that carry preferential right with regard to dividend as well as repayment of capital in case of winding up of the company. There are many types of preference shares which company can issue; here are some of them –
1. Cumulative and Non cumulative Preference shares – Cumulative preference shares give the right to the preference shareholders to receive arrears of dividend which were not paid in previous years due to company making loss. While Non- cumulative Preference shareholders do not have right like Cumulative preference shareholders and therefore they cannot demand any arrears of dividend which were not paid during previous years by the company.
2. Participating and Non Participating Preference shares – Participating Preference shareholders have the right to receive any remaining profit which is left after payment of dividend to the equity shareholders, while Non Participating Preference shareholders do not have such rights.
3. Convertible and Non Convertible Preference shares – Convertible Preference shares can be converted into equity shares if preference shareholder decides to do so while Non Convertible Preference shares does not have any such right.
4. Redeemable and Non Redeemable Preference shares – Redeemable Preference shares are those shares which have to be repaid by the company after a fixed period of time from the date of issue of such shares while Non Redeemable Preference shares cannot be redeemed repaid by the company except on winding up of the company.