Both equity shareholders and preference shareholders are owners of a company, but they hold different types of ownership with varying rights and privileges.
Equity Shareholders: Equity shareholders are also known as common shareholders. They hold ownership in the company in the form of common stock. These shareholders have voting rights in company matters, and their ownership is residual, meaning they have the potential for higher returns through dividends and capital appreciation, but they also bear greater risk if the company faces financial difficulties.
Preference Shareholders: Preference shareholders hold ownership in the company through preferred shares. These shares come with certain preferential rights, such as a fixed dividend rate that is paid before dividends are distributed to equity shareholders. However, preference shareholders generally do not have the same voting rights as equity shareholders. The preference in dividends and the potential redemption feature of redeemable preference shares provide investors with some degree of predictability and protection. |
