(a) State three differences between equity shareholders and debenture shareholders.
(b) Explain the following types of preference shares:
(i) cumulative preference shares;
(ii) redeemable preference shares;
(iii) participating preference shares.
(a)Difference between equity shareholder and debenture shareholder.
i. Equity shareholder is part of the owners of the company while debenture shareholder receives dividends as return for their investment.
ii. Equity shareholder is perpetual while debenture shareholder has a maturity date which they seize to be part of the company.
b(i)Cumulative preferences shares: this is a type of preference shares in which the dividends are accumulate over time. That is if a dividend is not pay for a particular year. That dividend will be carried over to another year until it is paid.
(ii) Redeemable preference share: This is a type of preference shares which can be paid off by the company at any time. That is the company can redeem it by paying it off and taken over by ordinary shareholder or in itself converted to ordinary shares for the holder.
(iii) Participating Preference shares: This is a type of preference share in which the holder is allowed to participate in the ordinary general meeting of the company and allowed to take part in the decision making of the company.
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