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Shares, preference

These shares have preferential right to dividend, i.e. they are entitled to a fixed sum before anything is paid to holders of ordinary shares. The dividend may or may not be cumulative. In any event, dividends are paid at the discretion of the directors and the shareholders cannot insist on them.

The voting rights of preference shareholders are normally strictly limited: they can usually only vote when their dividends ire in arrears. Shares are occasionally also preferential as to return of capital, and are also sometimes redeemable at the company’s option. Occasionally one finds preference shares with additional dividend rights (e.g. a right to a further share in profits after ordinary shareholders have received a certain percentage). These are usually known as participating preference shares. The rights of preference shareholders can vary considerably and will be detailed in the company’s articles of association.

Reference: The Penguin Business Dictionary, 3rd edt.