Difference between Equity Share and Preference share

Difference between Equity Share and Preference share

The basic difference between Equity Share and Preference share is the limit on the dividend. In the type of Preference share, the rate of dividend is already fixed before the issue but the dividend of equity share is not fixed it will depend on the profit of the year.  

To know the difference between these two, we must clear the meaning of these terms and explained as follows: –

Meaning of Equity Share:

“(a) equity share capital—
(i) with voting rights; or
(ii) with differential rights as to dividend, voting, or otherwise in accordance with such rules as may be prescribed;”

– Section 43 subsection (a) for the Indian Companies Act, 2013

Meaning of Preference share:

“(b) preference share capital:
Provided that nothing contained in this Act shall affect the rights of the preference shareholders who are entitled to participate in the proceeds of winding up before the commencement of this Act.”

– Section 43 subsection (b) for the Indian Companies Act, 2013

Chart of Difference between Equity Share and Preference share: –

Basis of Difference

Equity Share

Preference Share

Meaning Equity share has no preferential right of receiving dividend and repayment of capital.  Preference share has the preferential right of receiving dividend and repayment of capital. 
Payment of Dividend  The dividend on equity share is paid after the payment of dividend on preference shares. The dividend on preference share is paid Before the payment of dividend on equity shares.
Rate of Dividend Rate of dividend is not fixed.  Rate of dividend is fixed before issued. 
Convertibility It can not be converted. It may be converted to equity share if the terms are provided Before issue. 
Buy Back It can be buyback.  It can not be buyback.
Redemption  It can not be redeemed  It can be redeemed as per terms in the prospectus. 
Voting Rights  Equity Shareholders have the rights to vote for any decision in all types of circumstances.  Preference Shareholders have the rights to vote only in specific/special circumstances. 
Participation in the Management  Equity shareholders have the right to participate in the management of the business.  Preference shareholders have no right to participate in the management of the business. 


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Difference between Partnership and Company

 

Conclusion:

Thus, both types of businesses are very different from each other one type i.e. Equity share have all right to run business with their consent but preference shareholder can not interfere in the day to day activities as well as management of the business.

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