Preference Shares Definition

Preference shares are a type of equity security that entitles the holder to a fixed dividend payments, typically before common shareholders, and often with priority over common stock in the event of liquidation. The dividend payments are usually set at a fixed rate, although some preference shares may have variable rates.

Preference shares typically don’t give the holder any voting rights in the company, but they may be entitled to vote on certain matters, such as changes to the company’s articles of incorporation.

Preference shares can be cumulative or non-cumulative. Cumulative preference shares entitle the holder to receive all missed preference dividends before common shareholders receive any dividends. Non-cumulative preference shares do not have this entitlement.

Preference shares can be callable or non-callable. Callable preference shares allow the issuing company to buy back the preference shares at a predetermined price after a certain date. Non-callable preference shares do not have this feature.