Question : What among the following is not a characteristic of a preference share?
Option 1: right to receive dividend
Option 2: voting right
Option 3: right to receive interest
Option 4: All of the above
Correct Answer: right to receive interest
Solution :
The following are the characteristics of a preference share:
1. Voting Rights: Preference shareholders generally do not have voting rights or have limited voting rights compared to common shareholders. However, some preference shares may come with voting rights in certain circumstances, such as non-payment of dividends.
2. Dividend: Preference shareholders are entitled to receive a fixed dividend at a predetermined rate, which is usually expressed as a percentage of the par value of the shares. This dividend must be paid out before any dividends can be distributed to common shareholders.
3. Preference in Dividend Payment: Preference shareholders have priority over common shareholders when it comes to receiving dividends. In the event of insufficient profits, preference shareholders must be paid their fixed dividends before any dividends can be distributed to common shareholders.
Hence, the correct answer is option 3.