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Consider the following statements regarding Preference shares:
- If the company enters bankruptcy, preference shareholders are entitled to be paid from company assets before common stockholders.
- Redeemable preference shares are those shares that can be redeemed by the issuing company at a fixed rate and date.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
Consider the following statements regarding Preference shares: If the ...
Statement 1: If the company enters bankruptcy, preference shareholders are entitled to be paid from company assets before common stockholders.
This statement is correct. Preference shareholders have a higher claim on the assets of a company compared to common stockholders in the event of bankruptcy. When a company goes bankrupt, its assets are liquidated and distributed among its creditors and shareholders. Preference shareholders have a preferential right to receive their investment back before the common shareholders. This means that preference shareholders are entitled to be paid from the company's assets before common stockholders receive anything.
Statement 2: Redeemable preference shares are those shares that can be redeemed by the issuing company at a fixed rate and date.
This statement is also correct. Redeemable preference shares are a type of preference shares that can be redeemed by the issuing company at a predetermined rate and date. Unlike non-redeemable preference shares, which have no fixed maturity date, redeemable preference shares have a specific redemption date specified in their terms. On the redemption date, the company has the option to redeem these shares by repaying the shareholders their initial investment amount or a predetermined redemption price. This feature provides the issuing company with flexibility in managing its capital structure and allows it to redeem the shares when it is financially favorable to do so.
Therefore, both statements are correct.
In conclusion, preference shareholders have a higher claim on the assets of a company in the event of bankruptcy, and redeemable preference shares can be redeemed by the issuing company at a fixed rate and date. These features provide preference shareholders with certain advantages and protections compared to common stockholders.
This statement is correct. Preference shareholders have a higher claim on the assets of a company compared to common stockholders in the event of bankruptcy. When a company goes bankrupt, its assets are liquidated and distributed among its creditors and shareholders. Preference shareholders have a preferential right to receive their investment back before the common shareholders. This means that preference shareholders are entitled to be paid from the company's assets before common stockholders receive anything.
Statement 2: Redeemable preference shares are those shares that can be redeemed by the issuing company at a fixed rate and date.
This statement is also correct. Redeemable preference shares are a type of preference shares that can be redeemed by the issuing company at a predetermined rate and date. Unlike non-redeemable preference shares, which have no fixed maturity date, redeemable preference shares have a specific redemption date specified in their terms. On the redemption date, the company has the option to redeem these shares by repaying the shareholders their initial investment amount or a predetermined redemption price. This feature provides the issuing company with flexibility in managing its capital structure and allows it to redeem the shares when it is financially favorable to do so.
Therefore, both statements are correct.
In conclusion, preference shareholders have a higher claim on the assets of a company in the event of bankruptcy, and redeemable preference shares can be redeemed by the issuing company at a fixed rate and date. These features provide preference shareholders with certain advantages and protections compared to common stockholders.
Community Answer
Consider the following statements regarding Preference shares: If the ...
The Securities and Exchange Board of India (Sebi) recently proposed to permit companies to issue non-convertible debentures (NCDs) and non-convertible redeemable preference shares (NCRPS) with the face value of Rs. 10,000 as against the current system of Rs one lakh face value.
What are Preference Shares?
- Preference shares, more commonly referred to as preferred stock, are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued.
- If the company enters bankruptcy, preferred stockholders are entitled to be paid from company assets before common stockholders.
- Non-Convertible v/s Convertible Preference Shares:
- Preference shares that can be easily converted into equity shares are known as convertible preference shares.
- Non-Convertible preference shares are those shares that cannot be converted into equity shares.
- Redeemable v/s Non-Redeemable Preference Shares:
- Redeemable preference shares are those shares that can be repurchased or redeemed by the issuing company at a fixed rate and date. These types of shares help the company by providing a cushion during times of inflation.
- Non-redeemable preference shares are those shares that cannot be redeemed or repurchased by the issuing company at a fixed date. Non-redeemable preference shares help companies by acting as a lifesaver during times of inflation.
- Other Types:
- Cumulative preference shares: Some preference shares also receive arrears of dividends, which are called cumulative preference shares.
- Participating preference shares: These help shareholders demand a part in the company’s surplus profit at the time of the company’s liquidation after the dividends have been paid to other shareholders. However, these shareholders receive fixed dividends and get part of the surplus profit of the company along with equity shareholders.
- Non-Participating preference shares: These do not benefit the shareholders the additional option of earning dividends from the surplus profits earned by the company, but they receive fixed dividends offered by the company.
- Adjustable Preference Shares: In the case of adjustable preference shares, the dividend rate is not fixed and is influenced by current market rates.
Hence both statements are correct.
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Consider the following statements regarding Preference shares: If the company enters bankruptcy, preference shareholders are entitled to be paid from company assets before common stockholders. Redeemable preference shares are those shares that can be redeemed by the issuing company at a fixed rate and date.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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Consider the following statements regarding Preference shares: If the company enters bankruptcy, preference shareholders are entitled to be paid from company assets before common stockholders. Redeemable preference shares are those shares that can be redeemed by the issuing company at a fixed rate and date.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements regarding Preference shares: If the company enters bankruptcy, preference shareholders are entitled to be paid from company assets before common stockholders. Redeemable preference shares are those shares that can be redeemed by the issuing company at a fixed rate and date.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements regarding Preference shares: If the company enters bankruptcy, preference shareholders are entitled to be paid from company assets before common stockholders. Redeemable preference shares are those shares that can be redeemed by the issuing company at a fixed rate and date.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?.
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