Question : Questions : Equity Shares and Preference Shares
Statement 1: Convertible preference shares allow shareholders to convert them into equity shares.
Statement 2: Convertible preference shares can only be converted into cash.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statements 1 and 2 are true.
Option 4: Both statements 1 and 2 are false.
Correct Answer:
Statement 1 is true, and statement 2 is false.
Solution : The correct answer is (a) Statement 1 is true, and statement 2 is false.
Statement 1 is true. Convertible preference shares indeed allow shareholders to convert them into equity shares. This is a common feature of convertible preference shares, providing the shareholder with the option to exchange their preference shares for a predetermined number of equity shares.
Statement 2 is false. Convertible preference shares can be converted into equity shares, not just cash. The conversion feature allows the holder to switch from being a preference shareholder to an equity shareholder by exchanging their convertible preference shares for a specific number of equity shares.
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