- The rate of dividend
The paying rate for dividends is not fixed while paying to equity shareholders. In contrast, preference shareholders receive dividends at a fixed rate predefined at the standard value of the share price.
The Board of Directors decides the dividend rate for equity shareholders after judging the company’s performance in the past financial year.
- Voting Rights
Equity shareholders have the right to vote in taking crucial decisions of the company. On the other hand, preference shareholders do not have the voting right in the company’s decision.
- Capital Repayment
Equity shareholders get capital repayment at the time of liquidation of the company and considered the last people to repay. In comparison, preference shareholders get capital repayment before delivering it to equity shareholders.
- Liquidation
When it comes to the event of liquidation, the preference shareholders have the opportunity to receive all forms of payment after paying to the company’s creditors.
Equity shareholders have all the rights on the company’s assets once all the pending payments are completed successfully.
- Bonus Shares
Equity shareholders are eligible to receive bonus shares from the company, whereas preference shareholders are not eligible to receive bonus shares.
- Role in Management
Equity shareholders are called part owners of the company based on the shares they own. On the other hand, preference shares do not have any advantage in terms of role in management.
- Capitalization
Equity shares have higher chances for over-capitalization, whereas preference shares have lesser options for over-capitalization.
- Cost
The low cost of equity shares makes them easily accessible in the hand of small investors. On the other hand, preference shares come with higher price tags, making them accessible in the hands of medium to large investors.
- Bankruptcy
Equity shareholders get paid after fully paying preference shares. In contrast, preference shareholders have full preferential rights to receive capital before paying to equity shareholders.
- Risk Exposure
Equity shareholders have a high risk of exposure because of the market’s volatility and the company’s performance. At the same time, preference shares do not pose any threat and are safer than equity shares.
- Arrears
Equity shareholders have no claim over the arrears of the dividends, whereas preference shares claim over the arrears of the dividends.
- Redemption
Equity shares do not come under redemption till the lifetime presence of the company. On the other hand, preference shares can be redeemed after a certain period or after achieving the desired goal successfully.
- Denomination
Equity shares mostly have a lower denomination, whereas preference shares have a higher denomination.
- Financing Term
Equity shares serve as a means of long-term financing, whereas preference shares serve as a means of midterm and long-term financing.
- Financial Burden
The payment of equity dividends is optional as it entirely depends on the company’s profit and does not provide any fixed financial commitment. On the other hand, preference shareholders receive a fixed payment of dividends and financial obligation from the company.