Which of the following shareholders have a right to receive the arrears of dividend from future profits?
Answer & explanation
Correct answer: option 4
Cumulative Preference Shares are those preference shares on which any unpaid dividends accumulate and must be paid before any dividend can be paid to the common shareholders. In other words, if the company is unable to pay the stipulated dividend on these shares in any particular year due to insufficient profits, the unpaid dividend is carried forward to subsequent years. The accumulated unpaid dividends must be settled before any dividends can be paid to ordinary shareholders.