Examples of Ordinary Shares vs. Examples of Preference Shares

Attribute	Examples of Ordinary Shares	Examples of Preference Shares
Voting Rights	Have voting rights in company decisions	May or may not have voting rights, depending on the terms
Dividend Payments	Receive dividends after preference shareholders	Receive fixed dividends before ordinary shareholders
Priority in Liquidation	Have lower priority in liquidation compared to preference shareholders	Have higher priority in liquidation compared to ordinary shareholders

Attributes of Ordinary Shares

Ordinary shares, also known as common shares, are the most common type of shares issued by a company. These shares represent ownership in the company and give shareholders voting rights at annual general meetings. Ordinary shareholders are entitled to dividends, although the amount can vary depending on the company's profitability. In the event of liquidation, ordinary shareholders are the last to receive any remaining assets after creditors and preference shareholders have been paid.

Attributes of Preference Shares

Preference shares, on the other hand, are a type of share that gives shareholders certain rights and privileges over ordinary shareholders. These shares typically have a fixed dividend rate, which means that preference shareholders receive a set amount of dividends before any dividends are paid to ordinary shareholders. Preference shareholders also have priority over ordinary shareholders in the event of liquidation, meaning they are paid out before ordinary shareholders receive any remaining assets.

Dividend Payments

One of the key differences between ordinary shares and preference shares is how dividends are paid out. Ordinary shareholders only receive dividends after all other obligations of the company have been met, including paying off creditors and paying dividends to preference shareholders. This means that the amount of dividends ordinary shareholders receive can fluctuate depending on the company's financial performance. Preference shareholders, on the other hand, have a fixed dividend rate that is paid out before any dividends are distributed to ordinary shareholders.

Voting Rights

Another important distinction between ordinary shares and preference shares is voting rights. Ordinary shareholders have the right to vote on company matters at annual general meetings, giving them a say in important decisions such as electing board members and approving major corporate actions. Preference shareholders, on the other hand, typically do not have voting rights. This means that preference shareholders do not have a say in company decisions, but they do have priority when it comes to receiving dividends and assets in the event of liquidation.

Risk and Return

When it comes to risk and return, ordinary shares are generally considered riskier than preference shares. This is because ordinary shareholders are the last to receive any remaining assets in the event of liquidation, after creditors and preference shareholders have been paid. However, ordinary shareholders also have the potential for higher returns, as they can benefit from the company's growth and profitability through capital appreciation and increased dividends. Preference shareholders, on the other hand, have a more predictable return in the form of fixed dividends, but they may miss out on potential gains if the company performs well.

Convertible Shares

Some preference shares come with the option to convert into ordinary shares at a later date. These convertible preference shares give shareholders the flexibility to switch between the two types of shares based on their investment goals and the company's performance. By converting preference shares into ordinary shares, shareholders can benefit from potential capital appreciation and increased voting rights. However, this also means giving up the fixed dividend rate and priority in liquidation that preference shares offer.

Conclusion

In conclusion, ordinary shares and preference shares have distinct attributes that cater to different investor preferences and risk tolerances. Ordinary shares offer voting rights and the potential for higher returns, but they also come with greater risk and uncertainty. Preference shares, on the other hand, provide fixed dividends and priority in liquidation, making them a more stable investment option. Ultimately, the choice between ordinary shares and preference shares depends on an investor's financial goals, risk appetite, and investment strategy.