Issue of Equity & Preference Shares
All about equity and Preference shares:
Difference between equity shares and preference shares, procedure and our analysis
| Equity Shares | Preference shares | |
|---|---|---|
| Voting Rights | Equity Shares have voting rights and can vote on all major decisions | Preference shareholders do not have voting rights |
| Preference for dividend | The dividend is paid to equity shareholders only after paying the dividend to Preference shareholders | They have first right over the dividend payments |
| Amount of dividend | The dividend paid to equity shareholders depend on the profit earned. More profit means more dividend | The dividend paid to preference shares is fixed irrespective of profit |
| Process to issue equity shares and preference shares | Step 1: Increase the authorised share capital Step 2: Call the board meeting to approve the offer letters and send the same to the proposed investors Step 3: Call the EOGM to approve the offer Step 4: Get the offer letters signed by the investor and ask them to deposit the funds Step 5: Allot the shares to the investors and issue share certificates | Process to issue preference shares is same as equity shares |
Our Analysis:
Preference Shares are suited when issuing shares to angels and small investors. Equity shares are suited when issuing to institutional and big-ticket size investors.