Shares are financial assets that are a unit of the ownership of a particular company. By investing in the shares of a company, you become a part of that company concerning the amount of shares you hold. These shares can be broadly classified into three main categories, namely, 1. Equity shares 2. Deferred shares, and 3 the preferential shares. The article mainly deals with the third category of shares.

There are various kinds of preferential shares, as stated below:

1. Cumulative preference shares: This type of preferential shareholders is entitled to all the past payment of dividend which the company has failed to pay. Therefore the company pays all the due dividends to such types cumulatively.
2. Convertible preference shares: These shares are similar to convertible debentures and share the same concept. These shares have the option of converting their preference shares into ordinary equity shares.
3. Non convertible preference shares: Unlike the above-stated category, these shares are not entitled to the benefit of converting their shares into equity shares at their own will.
4. Non-cumulative preference shares: unlike the cumulative preference share, if a company fails to make the payment of dividend in the current financial year, then their right to get the payment due, with the next year’s payment is gone. However, a saving factor here is that if the company fails to pay such dividends for two consecutive years, then these shares are to be converted to equity shareholders.
5. Redeemable preference shares: These shares hold a maturity date, after which the company has to repay the capital amount to the preference shareholders and discontinue the payment of the dividend from that point.
6. Irredeemable Preference shares: This share does not have an expiry date, and are very similar to the equity shares, except for the fact that these shareholders are guaranteed the payment of dividend.

Preferential shares are those shares which gives the shareholder or the investor certain preferential rights. These are hybrid financial instruments used by the corporations to raise funds. The owners of the preferential shares are given certain advantages.

1. Guarantee of dividend: it is necessary to pay the dividend to the preferential share holders, under any circumstance, depending on the type of preferential shares issued. These shareholders are given a preference over the other shareholders when it comes to the payment of dividend.
2. Advantage during Liquidation of the company: Preferential shareholders are given a preference for the payment of all their dues pending from the side of the company when a company undergoes the process of liquidation or winding up.
3. Voting rights: The preferential shareholders have voting rights concerning the decisions made by company concerning these share holders. Any decision made by the company which maybe prejudice to the interest of such shareholders, the shareholders have a voting right under these situations.

Although the voting rights of the preferential shareholder are restrictive to their own interest, there are situations where they can hold the voting rights in the main decision making process of the company, just as the equity shareholders. When a company fails to pay the preferential shareholders the dividend for two consecutive year, the Company Act, provides that such preferential holders may be converted to equity shareholders and given permanent voting rights in the decision making process of the company.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.