please explain the concept of equity and preference shares. Why do people buy equity shares if the dividend here is fluctuating?i know ppl may hav a chance of becoming director, but a common man would not want to be one. n is the face value of both the types of shares same?
The answer given by the above two users is correct. As in preference shares the rate if dividend is fixed. Therefore, the holder of such shares will get a fixed rate even when there are high profits. On the other hand, the equity shareholders are the residual claimants of profit and as a result the higher the profits, the higher will be the dividend paid to equity shareholders.
Moreover, the face value of equity share is not the same as the face value of preference shares. Generally, the face value of equity share is Rs.10, while, the face value of preference shares is Rs.100. However, it does not means that the company will always issue these shares at the aforementioned face value. The face value of both the equity shares and the preference shares will depend on the debt burden, credit worthiness and goodwill of the company.
Equity shares are ordinary shares which are issued by a company to its shareholders.
- People buy more shares as the rate % depends upon the profits earned by the buisness.
- The higher the profits ,the more is the rate %.
- Thus ,with a greed of getting more profits ,the shareholers prefer these shares
Switching over to the preferance shares ,they get a fixed rate% despite a loss or profit of buisness. Moreover, they are preferred over the equity shareholders while distribution of dividend.
Equity Share :- An equity share, commonly referred to as ordinary share also represents the form of fractional or part ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights.Preference Share :- A share which entitles the holder to a fixed dividend, whose payment takes priority over that of ordinary share dividends.
There is fixed % of dividend on preference share but no limit on equity share.People invest there money to earn the profit in less time that is why people invest more more money in equity share.
No Face value is different for both shares.these are defined by BOD.