Wednesday, January 5, 2011

Preference Shares

Preference shares are a type of share that generally ranks ahead of ordinary shares, but usually has a fixed claim amount e.g. $1 per share, and generally pays dividends at a specific rate. Preference shares lie toward the equity end of the debt-equity spectrum, with features of equity, but features that are also similar to debt. Preference shares can be a useful element of a company's capital structure, and can be designed with special rights and characteristics e.g. redeemable (able to be redeemed or cashed in), cumulative (unpaid dividend obligations accumulate), convertible (convert to common stock) etc. It is important that investors understand their rights and obligations when investing in non-standard investments.

Synonyms: Preferred stock, Alternative shares, Special shares

If you have any further questions or would like to add to this fund management term, then please submit your thoughts below.

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