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Which type of the following shares have the right to receive dividends unpaid in prior years, whenever earnings become adequate?
- a)Cumulative preference shares
- b)Participating preference shares
- c)Convertible preference shares
- d)Callable preference shares
Correct answer is option 'A'. Can you explain this answer?
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Which type of the following shares have the right to receive dividends...
Cumulative Preference Shares
Cumulative preference shares are the type of shares that have the right to receive dividends unpaid in prior years, whenever earnings become adequate. Let's understand it in detail:
Definition: Cumulative preference shares are a type of preference shares that entitle the holder to receive dividends in arrears in addition to the current dividend before any dividend is paid to the equity shareholders.
Features of Cumulative Preference Shares:
1. Fixed Dividend: Cumulative preference shares have a fixed dividend rate which is specified at the time of issue.
2. Priority in Payment: In case of liquidation or winding-up of the company, the holders of cumulative preference shares have a priority in payment of capital over the equity shareholders.
3. Cumulative Dividend: If the company fails to pay the dividend on cumulative preference shares in any year, the arrears of dividend accumulate and are paid in subsequent years when the company earns sufficient profits.
4. Non-Voting Rights: Cumulative preference shareholders generally do not have voting rights in the company.
Advantages of Cumulative Preference Shares:
1. Regular Income: Cumulative preference shares provide the holder with a regular income as they are entitled to a fixed dividend rate.
2. Protection of Investment: Cumulative preference shares protect the investment of the holder as they have a priority in payment of capital.
3. Better than Equity Shares: Cumulative preference shares are better than equity shares in terms of regular income and protection of investment.
Disadvantages of Cumulative Preference Shares:
1. No Control: Cumulative preference shareholders do not have voting rights in the company, so they cannot participate in the management of the company.
2. Limited Returns: Cumulative preference shares provide limited returns to the holder as the dividend rate is fixed.
Conclusion:
Cumulative preference shares are a good investment option for those who want a regular income and protection of investment. They have a priority in payment of capital and are entitled to a fixed dividend rate. However, they do not have voting rights and provide limited returns to the holder.
Cumulative preference shares are the type of shares that have the right to receive dividends unpaid in prior years, whenever earnings become adequate. Let's understand it in detail:
Definition: Cumulative preference shares are a type of preference shares that entitle the holder to receive dividends in arrears in addition to the current dividend before any dividend is paid to the equity shareholders.
Features of Cumulative Preference Shares:
1. Fixed Dividend: Cumulative preference shares have a fixed dividend rate which is specified at the time of issue.
2. Priority in Payment: In case of liquidation or winding-up of the company, the holders of cumulative preference shares have a priority in payment of capital over the equity shareholders.
3. Cumulative Dividend: If the company fails to pay the dividend on cumulative preference shares in any year, the arrears of dividend accumulate and are paid in subsequent years when the company earns sufficient profits.
4. Non-Voting Rights: Cumulative preference shareholders generally do not have voting rights in the company.
Advantages of Cumulative Preference Shares:
1. Regular Income: Cumulative preference shares provide the holder with a regular income as they are entitled to a fixed dividend rate.
2. Protection of Investment: Cumulative preference shares protect the investment of the holder as they have a priority in payment of capital.
3. Better than Equity Shares: Cumulative preference shares are better than equity shares in terms of regular income and protection of investment.
Disadvantages of Cumulative Preference Shares:
1. No Control: Cumulative preference shareholders do not have voting rights in the company, so they cannot participate in the management of the company.
2. Limited Returns: Cumulative preference shares provide limited returns to the holder as the dividend rate is fixed.
Conclusion:
Cumulative preference shares are a good investment option for those who want a regular income and protection of investment. They have a priority in payment of capital and are entitled to a fixed dividend rate. However, they do not have voting rights and provide limited returns to the holder.
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Which type of the following shares have the right to receive dividends unpaid in prior years, whenever earnings become adequate?a)Cumulative preference sharesb)Participating preference sharesc)Convertible preference sharesd)Callable preference sharesCorrect answer is option 'A'. Can you explain this answer?
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