Difference between Equity Shares and Preference Shares

Points
Definition
Dividend

Equity Shares

Preference shares

ESH get the dividend from

the remaining income after
paying dividends to
preference shares.
After the maturity period.

PSH gets the preference in

getting dividends.

PSH donot enjoy bonus

shares.

Right shares

ESH will be enjoying bonus

shares issued by company
free of cost, out of ploughing
back of profits.
Existing ESH enjoy preemptive rights of getting first
priority of purchasing the
equity shares out of the new
issue in proportionate ratio.

Capital

It provides permanent capital. It provides temporary

Redemption

At the time of winding of

the company. But they can
be sold.
Repayment of
PSH have the priority over
ESH are repaid after the
capital
ESH at the time of liquidation payment made to the PSH at
or winding up of the
liquidation.
company.
Rate of dividend
Rate is higher than PSH.
Fixed rate of dividend
Voting right
ESH enjoy voting rights.
PSH have restricted voting
rights.
Share price
Nominal value is less than
Nominal value is more than
Preference shares.
equity shares.
Right to participate ESH have the right to
PSH dont have the right to
in management
participate in management.
participate in the
administration and control
of the company.
Accumulation of
If dividend not paid during
In case of cumulative
dividend
the current year, it lapses.
preference shares, dividend
can be accumulated for next
3 years if not paid during
the current year.
Bonus shares

PSH donot enjoy right

shares.

Risky

capital.
It is risk free source of raising It has a fixed burden on the
capital for the company.
company for payment of
dividend and repayment of
capital at liquidation.