So we are answering another readers's question this week.
“What is the difference between
ordinary and preference shares?”
There is a large difference between ordinary and preference
shares. However, most people haven’t heard of preference shares or don’t understand
what they are!
Ordinary shares: Entitles the owner to a small percentage of
ownership of the company. Each share is of equal value and gives the owner a
portion of the profit earned by the company, paid as a dividend. Each share
also allows the owner to vote at shareholders meetings for the board of
directors or specific decisions. (I went into more detail a few weeks ago in a post if you would like more information, http://illuminatingfinance.blogspot.com.au/2014/01/shares-shareholders-and-stockmarket.html)
Preference shares: Are normally issued by larger companies
and usually contain a combination of the following; a preferential dividend,
seniority in any liquidation, or special voting rights. Sometimes the
preference shares give the owner an option to convert it to an ordinary share
on some future date, these are called convertible
preference shares (turns out financiers are not particularly imaginative
with their naming).
I hope this helps answer your question!
Feel free to ask any and every question you would like me to
address at illuminatingfinance@gmail.com
