Preference Share Law and Legal Definition

Preferred shares are a special class of shares that may have any combination of features not possessed by common stock. Such shares in a company give their holders an entitlement to a fixed dividend but do not usually carry voting rights.

The important difference between preference and ordinary shares are:

The dividend on ordinary shares is uncertain and variable (high when the company does well, poor or non-existent when it does badly). Preference shareholders get a fixed dividend which, if not paid, usually accrues until it can be.

Each ordinary share usually carries a vote. Preference shares do not usually carry a vote unless dividends fall into arrears.

In the event of a winding up, preference shares are usually repayable at par value, and rank above the claims of ordinary shareholders (but behind bank and trade creditors). Preference shares may be issued with the right of conversion into ordinary shares. These are called convertibles.