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Difference between ordinary shares and preference shares- Types of shares

Difference between ordinary shares and preference shares- Types of shares

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Preference Shares vs Ordinary Shares are different to each other only because of few things like voting rights, dividend preference and preference of paying while company goes into liquidation. Another key difference between ordinary shares and preference shares are ordinary shares are issue to founders while, preference shares are issue to investors of the company.

What is stock or shares definition ?

Percentage of having some kind of ownership is known as a stock in simple terms and number of units of any stocks means shares. So, overall stock and shares are quite similar with very minimum difference.

So this was the shares definition. Common type of shares are Preference shares vs ordinary shares, we will discuss about this further in this post.

What are different types of shares ?

Mainly their are 3-4 common types of shares which are:

  • Ordinary shares
  • Preference shares
  • Contributing shares
  • Company issued options

Types of shares Australia :

Well above mentioned all 4 types of shares are popular in Australia and people love to trade these type of shares in their everyday’s life but most common type of shares are Preference shares vs ordinary shares.

What are Preference shares | preference share definition

This type of shares are more powerful then any ordinary shares because these shares are right to get dividend first as compare to other type of shares. shareholders of this type of shares don’t have any voting rights. Their is one more interesting factor about preference shares, as  in come cases these share are “hybrid” which means they are convertible and can be convert into any other form of shares at anytime.

What is Ordinary shares | ordinary share definition

Ordinary shares are are most common and popular type of shares. The another name of ordinary shares is FPO means fully paid shares. In this type of shares, share holder have full right to vote. These share also divided into two classes which are – Class A , Class B.

You can assume that when two investors are taking of shares they are 99% taking of ordinary shares.

Further in this post we will do comparison of preference shares vs ordinary shares in full detail.

What are Contributing shares

These shares are know as partially paid shares means payment of share have instalment and they are paid at different faces or call dates. These share can be purchase and sold on ASX, NYSE  or any stock exchange, simply like any other type of shares.

What are company issued options

This is type of shares or you can say authority or option given by a company to shareholders to buy certain amount of shares at decided price before particular due date. Lot of people make money with option trading.

5 main Difference between ordinary shares and preference shares

Ordinary shares Preference Shares
Dividends are paid last Dividends are paid first
Have voting rights No voting rights
They are issue to founders They are issue to investors
Dividends are not fixe Fixed dividends
They have no  priority in company liquidation and paid at last They have priority in company liquidation and paid first

Lets do……

Preference shares vs ordinary shares

Bellow are the main key differences of preference shares and ordinary shares

Preference share holders receive dividends before ordinary share holders Which means when company’s both type of share holders such are ordinary or preference do meeting and decide to give dividends then first priority goes to Preference share holders for the dividends.

After distribute divide to Preference shareholder. what ever money is left that is distribute to ordinary share holders.

Voting power is only holds by ordinary share holders. While In any meeting of company ordinary share holder can vote for or in any decision while,

Preference share holders cant do anything in regards to voting they simply have to go with the decision made in meeting or in other terms they have to go with the decision made by the votes of Ordinary share holders.

In case company goes in liquidation due to any reason, Ordinary share holders will be paid last where as paying to  Preference share holders is priority of company.

Simply in other terms, investing risk of ordinary share holders is high as compared to primary share holder in case of liquidation of company.

Amount of Dividend paid out to Preference share holders is fixed and it is decide when shares are issue. On the other hand,

amount of Dividend keep on changing in case of ordinary share holders as it depends on company’s growth and profit, it could be higher sometimes and lower sometimes, it all depends on how much profit company is making.

So above points describe clear comparison of preference shares and ordinary shares.

Type of preference shares

  • Cumulative preference shares
  • Noncumulative preference shares
  • Participatory preference shares
  • Convertible preference shares

Conclusion

Well their are many differences in ordinary share and preference share but most common are Voting rights, Dividend priority, liquidation priority, dividend amount.

Ordinary share holders have right to vote and preference share holders don’t have right to vote. So they have to go with decision made by ordinary share holders. However, Preference share and ordinary share holders have few more differences. Like amount of dividend and priority while distribution of dividend.

If you are reading about preference shares vs ordinary shares that means you know about shares and their are 99% chances that you invest in shares. if you are looking to invest into lithium shares then we highly recommend you to check out Best lithium shares of 2022 post. you will love it.

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