Which of the following is a feature of preference shares of a company…

Which of the following is a feature of preference shares of a company?

(A) Fixed amount of dividend

(B) Preferential right to dividend

(C) The preferential right to the repayment of capital before anything is paid to equity shareholders in case of winding up of a company

(D) Preference dividend is considered a charge against profit like interest on debentures.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (A), (B) and (C) only

Under Section 43 of the Companies Act, 2013, a preference share carries two preferences over equity shares: one on dividend and one on return of capital in a winding up. Each statement is checked against this.

(A) Fixed amount of dividend Correct. The preference dividend is paid as a fixed amount or at a fixed rate of the nominal value of the share.

(B) Preferential right to dividend Correct. It is paid before any dividend goes to equity shareholders.

(C) The preferential right to the repayment of capital before anything is paid to equity shareholders in case of winding up of a company Correct. This is the second preference the Act gives.

(D) Preference dividend is considered a charge against profit like interest on debentures. Incorrect. A dividend is an appropriation of profit, paid only out of profit. Interest on debentures is a charge, paid whether or not there is a profit, because debenture holders are lenders while preference shareholders are owners.

NCERT (2026-27 edition):
Preference Shares – “According to Section 43 of The Companies Act, 2013, a preference share is one, which fulfils the following conditions : (a) That it carries a preferential right to dividend to be paid either as a fixed amount payable to preference shareholders or an amount calculated by a fixed rate of the nominal value of each share before any dividend is paid to the equity shareholders. (b) That with respect to capital it carries or will carry, on the winding up of the company, the preferential right to the repayment of capital before anything is paid to equity shareholders.”