Like equity shares, preference shareholders are also partial owners of a company. However, they are not entitled to voting rights and hence do not really possess the power to control or influence company-oriented decisions.
Explanation : Equity shareholders are the real owners of the company. Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds. They are the foundation for the creation of a company.
Who are considered as owners of the company?
A shareholder also referred to as a stockholder, is a person, company, or institution that owns at least one share of a company’s stock, known as equity. Because shareholders are essentially own the company, they reap the benefits of a business’s success.
Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds. They are the foundation for the creation of a company. … Through their right to vote, these shareholders have a right to participate in the management of the company.
Preference shares—also referred to as preferred shares—are an equity instrument known for giving owners preferential rights in the event of a dividend payment or liquidation by the underlying company.
Since in equity market there is high risk therefore, the equity shareholders are the real bearer of the company because they have a residual share in the liquidation of the company. Whereas, in preference shares, the shareholders have a preference with respect to higher claims on earning and the dividend rate is fixed.
In normal parlance, only equity shareholders get a right to vote while preference shareholders have no right to cast a vote in the matters of the company.
Solution(By Examveda Team)
Equity shareholders are the real owners of the company. Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds.
Companies issue preferred stock as a way to obtain equity financing without sacrificing voting rights. This can also be a way to avoid a hostile takeover. A preference share is a crossover between bonds and common shares.