PREFERENCE SHARES
Preference shares are often considered to be hybrid securities since they have features similar to both common shares and debentures. They are similar to common shares in that:
(a) The non-payment of dividend does not force the company into liquidation
(b) Dividends are not tax deductible
(c) Usually they are perpetual securities without a maturity period
On the other hand, it is similar to debenture in that
(a) The dividend rate is fixed
(b) Preference shareholders do not participate in residual income
(c) Preference shareholders have claims on income and assets prior to that of common shareholders
(d) Preference shareholders usually do not have voting rights
Because of the above similarities, we are not going to spend further time on preference shares.