Question : Preference shares provide the right to:
Option 1: Vote in company meetings
Option 2: Receive a fixed dividend before equity shareholders
Option 3: Convert into equity shares
Option 4: None of the above
Correct Answer: Receive a fixed dividend before equity shareholders
Solution : The correct answer is (b) Receive a fixed dividend before equity shareholders
Preference shares, also known as preferred shares or preferred stock, provide certain preferential rights to shareholders. One of the primary rights associated with preference shares is the entitlement to receive a fixed dividend before any dividends are distributed to equity shareholders.Preference shareholders have priority over equity shareholders when it comes to receiving dividends. This means that if the company generates profits and decides to distribute dividends, preference shareholders will be paid their fixed dividend amount before any dividends are allocated to equity shareholders. In the event of a company's liquidation, preference shareholders also have a higher priority in receiving their share of the company's assets compared to equity shareholders.
Question : What does the term "cumulative" mean in relation to preference shares?
Option 1: The right to vote in company meetings
Option 2: The obligation of the company to pay accumulated dividends
Option 3: The option for shareholders to convert preference shares into equity shares
Option 4: The requirement to pay a fixed dividend on preference shares
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