Lesson 3 of 7 · 13 min
Preference shares: cumulative, participating and convertible
Preference shares sit between debt and common equity: a fixed, higher dividend and priority over common shareholders, but no promise and usually no vote.
In short
- Preference shares rank above common shares for dividends and liquidation, but below all debt.
- They usually have no voting rights and no share in operating performance; the dividend is fixed and usually higher than the common dividend, but not a contractual obligation.
- Like common shares they can be perpetual and callable or putable.
- Cumulative: missed dividends accrue and must be paid before any common dividend. Non-cumulative: missed dividends are lost, though the current preferred dividend still comes before any common dividend.
- Participating: fixed dividend plus extra if profits exceed a set level (and possibly extra in liquidation). Used more by smaller, riskier firms.
- Convertible: can be exchanged for a set number of common shares; popular in venture capital and private equity.
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.