How Do You Spell PREFERENCE SHARES?
Pronunciation: [pɹˈɛfɹəns ʃˈe͡əz] (IPA) 
Pronunciation: [pɹˈɛfɹəns ʃˈe͡əz] (IPA)
Preference shares, also known as preferred stock or preferred shares, refer to a type of corporate ownership that grants certain privileges and preferences to shareholders ahead of common shareholders in the event of dividend payouts or liquidation of the company. These shares are typically issued by corporations to raise capital by attracting investors who desire a fixed return with priority claim on the company's assets over common shareholders.
Unlike common shares, preference shares do not offer voting rights in the company's decision-making process. Instead, they offer preferential treatment in terms of dividends and liquidation proceeds. The preference shares are accessible in various forms, including cumulative, non-cumulative, convertible, participating, and redeemable shares.
Cumulative preference shares guarantee the accumulation of unpaid dividends in the event of skipped payments, which must be paid out before common shareholders can receive any dividends. Non-cumulative preference shares do not accumulate unpaid dividends, and the issuer is not obligated to pay missed dividend payments.
Convertible preference shares can be converted into a certain number of common shares at the shareholder's discretion. Participating preference shares enable shareholders to receive additional dividends alongside common shareholders, while redeemable preference shares can be bought back by the issuing company after a specified period.
Overall, preference shares provide investors with an opportunity to invest in a company while receiving preferential treatment over common shareholders. These shares present an alternative investment option for individuals seeking a fixed return and lower risks compared to common shares, in exchange for foregoing voting rights and potential capital appreciation.
The word "preference shares" originates from the combination of two terms: "preference" and "shares".
The term "preference" derives from the Latin word "praefrons", which means "set before" or "prefer". It came into English in the 14th century and initially referred to a priority or a favored choice.
The term "shares" refers to a unit of ownership in a company, representing a portion of its capital. It comes from the Old English word "scearu", which means "division" or "portion".
Thus, "preference shares" emerged as a term to describe shares that have certain preferences or priorities over other classes of shares in terms of dividend payments or capital distribution. This type of share grants its holders certain advantages or priorities, often entitling them to receive dividends before common shareholders and have priority in the event of the company's liquidation.
