Question : The main difference between equity shares and preference shares is:
Option 1: Dividend payment priority
Option 2: Voting rights
Option 3: Redemption option
Option 4: Conversion into other securities
Correct Answer:
Dividend payment priority
Solution : The correct answer is (a) Dividend payment priority
The main difference between equity shares and preference shares lies in dividend payment priority. Preference shares have a higher priority in receiving dividends compared to equity shares. Preference shareholders are entitled to receive a fixed dividend amount before any dividends are distributed to equity shareholders. This fixed dividend is typically expressed as a percentage of the face value of the preference shares. If the company generates profits and decides to distribute dividends, preference shareholders receive their fixed dividend first, and any remaining profits may be distributed among equity shareholders.
