Advantages and Disadvantages of Equity Shares and Preference Shares

This article discusses the advantages and disadvantages of equity shares and preference shares. Equity shares are shares that represent ownership in a company. They give shareholders the right to vote on company matters and to receive dividends from the company’s profits. Preference shares are a type of equity share that have a higher priority than ordinary equity shares when it comes to receiving dividends and the return of capital.

Questions

• What are the advantages of equity shares?
• What are the disadvantages of equity shares?
• What are preference shares?
• What are the different types of preference shares?

Answers

• The advantages of equity shares include:
  • The potential for higher returns than other types of investments.
  • The right to vote on company matters.
  • The right to receive dividends from the company’s profits.
• The disadvantages of equity shares include:
  • The risk of losing money if the company goes bankrupt.
  • The lack of guaranteed dividends.
  • The lack of control over the company.
• Preference shares are a type of equity share that have a higher priority than ordinary equity shares when it comes to receiving dividends and the return of capital.
• There are two main types of preference shares: cumulative preference shares and non-cumulative preference shares. Cumulative preference shares have the right to receive all unpaid dividends in the future before ordinary shareholders receive any dividends. Non-cumulative preference shares do not have this right.