INTRODUCTION Raising capital by issue of shares is a most important

method of raising long-term funds. Those funds can be invested in long-term or permanent assets like land and building, plant and machinery, furniture etc. A share is unit of measure of a shareholder's interest in the total capital of the company. Share capital of a company is divided into a large number of equal parts and each part is known is a share. According to Companies Act, a company can issue two types of shares -preference and equity.

Preference shares. Sec. 85(1) of the Companies Act defines preference shares as those shares which carry preferential rights as the payment of dividend at a fixed rate and as to repayment of capital in case of winding up of the company. Thus, both the preferential rights viz. (a) preference in payment of dividend and (b) preference in repayment of capital in case of winding up of the company, must attach to preference shares

FEATURES 

• Maturity: • Conversion: • Participation in Income• Claim of Assets• No Controlling Power

TYPES• Cumulative and Non-cumulative

Preference shares• Redeemable and Irredeemable

Preference Shares• Convertible and Non-convertible

preference shares:• Participating and Non-

participating Preference Shares

ADVANTAGESCompany point of view• Fixed Return• No Voting Right: • Flexibility in

Capital Structure:

• No Burden on Finance

• No Charge on Assets

• Widens Capital Market:

Investors point of view• Regular Fixed

Income • Preferential

Rights: • Voting Right for

Safety of Interest

• Lesser Capital Losses

• Fair Security:

DISADVANTAGESDemerits for companies• Higher Rate of

Dividend• Financial Burden• Dilution of Claim

over Assets• Adverse effect

on credit-worthiness

• Tax disadvantage

Demerits for Investors• No Voting Right: • Fixed Income • No claim over

surplus: • No Guarantee of

Assets

Comparision between equity shares and preference shares:

Preference shares• These shares are entitled to a

fixed rate of dividend. • Dividend on these shares is

paid in preference to the equity shares.

• Redeemable preference shares may be redeemed by the company.

• The voting rights of these shares are restricted.

• The preference shares have preference to equity shares with regard to payment of capital on winding up.

Equity shares• The rate of dividend on equity

shares depends upon the amount of profit available and the funds requirements of the company for future expansion etc.

• The dividend on equity shares is paid only after the preference dividend has been paid. 

• Equity shares can not be redeemed except under a

• scheme involving reduction of capital or buy back of its own shares. 

• An equity share holder can vote on all matters affecting the company.

 

International perspectives• Canada• Germany• United Kingdom• Other countries:• Czech Republic – Preferred stock cannot be more than

50% of total equity.• France – By a law that dates from June 2004, France

allows the creation of preferred shares.• South Africa – Dividends from preference shares are

not taxable as income in the hands of individuals.• Brazil – In Brazil, up to 50% of the capital stock of a

company may be composed of preferred stock. The preferred stock will have at least one less right than the common stock (normally voting power) but will have preference in receiving dividends.

GRAPHS AND CHARTS

male female total0

5

10

15

20

25

gender

gender

According to survey in above table there are about 20 people surveyed in this 13 are males and 7 are females all are having good knowledge about shares and they regularly trade in shares.This is the overall picture of share investment

.

male female total0

5

10

15

20

25

Series456 and above46-5530-45

In this table we have surveyed the age group of 30-45;46-55;and 55 and above.according to our survey people of 30-45 age group there are about 10 people who invest in shares and in the age group of 46-55 there are about 4 people who invest in shares and last age group of 55 and above there are about 6 people who trade in shares.

male female total0

2

4

6

8

10

12

14

single

married

From the above graph people who are married invest more in shares as their savings are more and for future purpose to get good return on their investment.

male female total0

2

4

6

8

10

12

under graduategraduatepost graduateother if any

According to above graph there are 3 people under graduate;10 people graduate;6 people post graduate; and others 1.mostly graduate people invest in shares and trade

service business professional other0

1

2

3

4

5

6

7

8

9

malefemaletotal

According to this graph there are total 7 service people;8 business;3 professional;and 2 others who invest in shares.from this we can conclude that mostly businessman trade in shares.

less than 15000 15000-30000 30000 and above0

5

10

15

20

25

totalfemalemale

According to survey there are 2 people whose income is under 15000per month; around 10 people earn 15000-30000 per month; around 8 people are 30000 and above who earn and invest in shares ,in this we can conclude we can see that people having more income can save and invest in shares to earn profit.

male female total0

5

10

15

20

25

noyes

According to survey 20 people were surveyed and all invest in shares to earn profit.now a days shares are important part of life and people prefer investment in shares much more preferable then any other profitable saving.

do you invest in preference shares

male female total0

5

10

15

20

25

Series3Series2Series1

According to survey 5 male people invest in preference share and 2 female invest in preference shares; as preference shares are not easily available in market so they don’t actually look for investing in preference shares.

male female total0

1

2

3

4

5

6

7

8

noyes

According to survey 3 male people and 1 female were satsfied about their return on investment and other were not satisfied from return on investment as preference shares dividend are fixed and even at high profit dividend is low.

1 2 30

1

2

3

4

5

6

7

8

noyes if get chance will you invest in preference shares

According to above graph very few are ready to reinvest in preference shares as they are not satisfied on return on investment and low dividend factor.

Past record of organization

Growth prospect Credit Rating Safety0

1

2

3

4

5

6

7

8

9

totalfemalemale

According to above graph people look credit worthiness of company and reliability;brand image of company and also the past records of the company play an important role in influencing investors preference.

Bankers Newspaper TV Internet Friends Advice0

1

2

3

4

5

6

7

totalfemalemale

There are various sources like bankers, internet, tv;news paper, people from above graph get knowledge about preference shares from their bankers, friend and also from news paper.

Conclusion

 

 

As you see, preference shares are not really stocks -- they have many features of bonds, such as assured returns.In fact, they are like fixed income instruments -- their value remains the price at which the company issued them, while their dividends are fixed, just like interest payments.Sometimes though, preference shares have the option to be converted into ordinary shares.In case the company is winding up and its assets (land, buildings, offices, machinery, furniture, etc) are being sold, the money that comes from this sale is given to the shareholders. After all, shareholders invest in a business and own a portion of it.Preference shareholders' get the money first. Their accounts are settled before that of the ordinary shareholders, who are the last to get paid.Preference shares can be tailored to give control to an investor in a privatecompany by contract and through the company’s articles of association. However, preference shareholders will not be able to control a public company or a privatecompany that will be doing an IPO. In the circumstances, deals in India involve a significant equity component.