Differentiate between preference shares and ordinary shares of a company. – NABTEB QUESTION

Preference shares: These are units of a company’s capital which have a fixed rate of dividend. Holders of this class of shares are first when declaring dividends. This classes of shares are of four types namely; participating preference shares, cumulative preferences shares, redeemable and unredeemable preference shares. Whereas

Ordinary shares are otherwise known as “Equity share”. It does not have a fixed rate of dividends, holders of this class of shares usually receive dividends after the preference shareholders have been paid fully. There are many types of ordinary shares namely, deferred ordinary shares, preferred ordinary shares, founder shares e.t.c. holders of ordinary shares are usually refereed to as “Risk bearers” of the company.