Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Equity Shares and Preference Shares
Assertion: Equity shareholders have voting rights in company decisions.
Reason: Equity shareholders do not receive any dividends.
Option 1: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Option 2: Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
Option 3: Assertion is true, but the reason is false.
Option 4: Both assertion and reason are false.
Correct Answer: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Solution : The correct answer is (a) Both assertion and reason are true, and the reason is the correct explanation of the assertion.
The assertion is true: Equity shareholders typically have voting rights in company decisions. The number of votes a shareholder has often corresponds to the number of shares they hold. This is a fundamental aspect of equity ownership.
The reason is true and is the correct explanation of the assertion: Equity shareholders do not receive a fixed dividend like preferred shareholders. Dividends for equity shareholders are determined based on the company's profits and the decision of the board of directors. The absence of fixed dividends is a characteristic of equity shares and is linked to their voting rights. Equity shareholders prioritize influencing company decisions through voting rather than receiving guaranteed dividends.
Assertion: Preference shareholders have higher potential for capital appreciation compared to equity shareholders.
Reason: Preference shareholders have voting rights in company decisions.
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