This module is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
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.
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