Both ordinary shares and preference shares give shareholders ownership in a company, but they can be different from each other in some important ways.
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.
It is considered suitable for investors with low risk-taking capacity. It is considered for investors who can take risks. The differences between the two indicate that preferred stocks have some advantage over equity shares.
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.
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.
Owners in a corporation are shareholders. As owners, shareholders have an ownership interest in the corporation.
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. A debenture is a debt security issued by a corporation or government entity that is not secured by an asset.
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.