{"id":8113,"date":"2020-09-05T12:49:19","date_gmt":"2020-09-05T11:49:19","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=8113"},"modified":"2023-10-30T12:16:58","modified_gmt":"2023-10-30T12:16:58","slug":"what-are-preference-shares","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-preference-shares\/","title":{"rendered":"What are preference shares and should I issue them?"},"content":{"rendered":"<p>Some companies distribute multiple types (classes) of shares to shareholders. Ordinary shares are the most common class, but there are also non-voting shares, redeemable shares, and preference shares, to name but a few. In this blog, we will look specifically at preference shares.<\/p>\n<h3>What are preference shares?<\/h3>\n<p>There are three main features of preference shares:<\/p>\n<h4>1. Fixed rate of dividend<\/h4>\n<p>Preference shares, also known as preferred stock, are named as such because they have a <strong>fixed rate of dividend<\/strong> which is paid out <em>before<\/em> the other types of shares. In other words, they take precedence over ordinary shares (and other share classes) in terms of the payment of any dividends.<\/p>\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/services\/issue-of-shares\/\" class=\"related related-buy\" data-wpel-link=\"internal\"><span class=\"related-title related-buy-title\">Issue of Shares Service - only \u00a379.99 plus VAT<\/span><\/a>\n        \n<p>Any remaining profits available for distribution as dividends are shared between the holders of ordinary shares <em>after<\/em> the preference shareholders have been paid their fixed rate of dividend.<\/p>\n<p>It should be noted that preference shares do not guarantee payment of any dividend to their holders (i.e. if there have not been sufficient profits). But they are first in line if there are any profits in the relevant financial period.<\/p>\n<h4>2. Return of capital<\/h4>\n<p>Another feature of is that, in the event of the company being wound up, holders of preference shares are entitled to be repaid their capital contribution <em>before<\/em> ordinary shareholders. However, priority is still given to creditors over shareholders &#8211; preference or otherwise.<\/p>\n<h4>3. No voting rights<\/h4>\n<p>In general, this class of shares generally does not come with any automatic voting rights, unlike most ordinary shares.<\/p>\n<h3>What sub-types of preference shares are available?<\/h3>\n<ul>\n<li>Cumulative &#8211; this means that, if the fixed-rate dividend is not paid in respect of one financial period (i.e. due to poor profits), it will accrue and be added to future dividend payments when profits improve.<\/li>\n<li>Convertible &#8211; these allow preference shares to be converted into ordinary shares.<\/li>\n<li>Redeemable &#8211; these can be bought back by the company (e.g. if an <a href=\"https:\/\/www.gov.uk\/guidance\/employee-shareholders\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">employee shareholder<\/a> leaves the company).<\/li>\n<\/ul>\n<h3>What are the advantages of preference shares?<\/h3>\n<p>They generally offer a higher degree of security to their holders, compared to ordinary shareholders. This is both in terms of receiving a return on their investment and recouping any losses should the company get into financial difficulty.<\/p>\n<h3>What are the disadvantages of preference shares?<\/h3>\n<p>Because the dividend rate is fixed, preference shareholders will not reap the benefits of unexpectedly good profits. They will also potentially receive a much lower dividend payment, compared to ordinary shareholders.<\/p>\n<h3>When should preference shares be issued?<\/h3>\n<p>One of the reasons for issuing preference shares is to attract investment from risk averse shareholders. Some companies and investors view this share class as an alternative to a loan arrangement, providing the release of capital with a fixed rate of return, even though this does not involve debt and is therefore not a creditor relationship.<\/p>\n                                                    <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/company-shares-paid-partly-paid-and-unpaid-explained\/\" class=\"related\" data-wpel-link=\"internal\"><span class=\"related-title\">Company shares \u2013 paid, unpaid and partly paid<\/span><\/a>\n                    \n<p>However, preference shareholders will not necessarily see regular payments if company profits plummet, and their investment remains more at risk than creditors such as bank lenders, etc.<\/p>\n<p>Another reason for issuing preference shares, as opposed to ordinary shares, is that they do not dilute the voting rights of existing shareholders, because they do not come with voting rights. So they can be a good option for companies looking for more investment, but who do not want to give up control held by existing shareholders.<\/p>\n            <div class=\"complete_package__shortcode\">\n                <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/fully-inclusive-package\/\" data-wpel-link=\"internal\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-quality.s3.eu-central-1.amazonaws.com\/assets\/custom\/images\/blog\/qcf-blog_sidebar.png?v=2\"\n                        alt=\"Fully Inclusive Package Special Offer\"\n                        class=\"complete_package__mobile\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-quality.s3.eu-central-1.amazonaws.com\/assets\/custom\/images\/blog\/qcf-blog_banner.png?v=3\"\n                        alt=\"Complete Package Special Offer\"\n                        class=\"complete_package__desktop\">\n                <\/a>\n            <\/div>\n        \n"},"excerpt":{"rendered":"<p>Some companies distribute multiple types (classes) of shares to shareholders. Ordinary shares are the most common class, but there are also non-voting shares, redeemable shares, and preference shares, to name but a few. In this blog, we will look specifically at preference shares. What are preference shares? There are three main features of preference shares:&hellip;<\/p>\n","protected":false},"author":10,"featured_media":8126,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false},"categories":[141],"tags":[],"class_list":["post-8113","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-shares-shareholders","category-141","description-off"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.0 (Yoast SEO v24.0) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What are preference shares and should I issue them?<\/title>\n<meta name=\"description\" content=\"Find out about preference shares, the advantages and disadvantages of this type of share, and why you would want to issue them.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-preference-shares\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What are preference shares and should I issue them?\" \/>\n<meta property=\"og:description\" content=\"Find out about preference shares, the advantages and disadvantages of this type of share, and why you would want to issue them.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-preference-shares\/\" \/>\n<meta property=\"og:site_name\" content=\"Quality Formations Blog\" \/>\n<meta property=\"article:published_time\" content=\"2020-09-05T11:49:19+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-10-30T12:16:58+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2020\/09\/Preferred-Stock-2.png\" \/>\n\t<meta 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Nick is also Company Secretary for the BSQ Group and all subsidiary brands, an accredited industry leader and a Companies Act 2006 specialist.","jobTitle":"Director, Company Secretarial","url":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/author\/ncampion\/"}]}},"views":7610,"x_categories":"Shares and Shareholders","x_tags":"","x_featured_media":"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2020\/09\/Preferred-Stock-2-128x128.png","x_featured_media_medium":"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2020\/09\/Preferred-Stock-2-600x300.png","x_featured_media_large":"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2020\/09\/Preferred-Stock-2-600x300.png","x_featured_media_original":"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2020\/09\/Preferred-Stock-2.png","x_date":"5 Sep 2020","x_author":"Nicholas Campion","x_gravatar":"https:\/\/secure.gravatar.com\/avatar\/f9d97f3c5155446fa41f953ae5f16729?s=96&d=mm&r=g","x_metadata":{"_dt_sidebar_position":"right","_dt_sidebar_widgetarea_id":"sidebar_1","_dt_sidebar_hide_on_mobile":"0","_dt_footer_show":"1","_dt_footer_widgetarea_id":"sidebar_2","_dt_footer_hide_on_mobile":"0","_dt_header_title":"enabled","_dt_header_background":"normal","_dt_header_background_below_slideshow":"disabled","_dt_header_transparent_bg_color_scheme":"light","_dt_header_transparent_top_bar_bg_color":"#ffffff","_dt_header_transparent_top_bar_bg_opacity":"25","_dt_header_transparent_bg_color":"#000000","_dt_header_transparent_bg_opacity":"50","_dt_header_disabled_background":"normal","_dt_header_disabled_transparent_bg_color_scheme":"light","_dt_header_disabled_transparent_top_bar_bg_color":"#ffffff","_dt_header_disabled_transparent_top_bar_bg_opacity":"25","_dt_header_disabled_transparent_bg_color":"#000000","_dt_header_disabled_transparent_bg_opacity":"50","_dt_page_overrides_top_margin":"","_dt_page_overrides_bottom_margin":"","_dt_post_options_back_button":"0","_dt_post_options_hide_thumbnail":"0","_dt_post_options_related_mode":"same","_dt_post_options_preview":"normal","_yoast_wpseo_content_score":"30","_yoast_wpseo_focuskeywords":"[]","_yoast_wpseo_primary_category":"141","ampforwp_custom_content_editor":"","ampforwp_custom_content_editor_checkbox":"","ampforwp_amp_on_off":"default","_thumbnail_id":"8126","_yoast_wpseo_focuskw_text_input":"preference shares","_yoast_wpseo_focuskw":"preference shares","_yoast_wpseo_linkdex":"66","_yoast_wpseo_metadesc":"Find out about preference shares, the advantages and disadvantages of this type of share, and why you would want to issue them.","views":"7610","yarpp_meta":{"yarpp_display_for_this_post":0},"_yoast_wpseo_keywordsynonyms":"[\"\"]","_yoast_wpseo_estimated_reading_time_minutes":"3","_ez_toc_disabled":"","_ez_toc_insert":"","_ez_toc_heading_levels":[],"_ez_toc_alttext":"","_ez_toc_exclude":"","_yoast_indexnow_last_ping":"1698668182","_yoast_wpseo_wordproof_timestamp":""},"_links":{"self":[{"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/posts\/8113","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=8113"}],"version-history":[{"count":16,"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/posts\/8113\/revisions"}],"predecessor-version":[{"id":10977,"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/posts\/8113\/revisions\/10977"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/media\/8126"}],"wp:attachment":[{"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=8113"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=8113"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=8113"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}