PREFERENCE SHARE CAPITAL (Quasi-Equity) – It is also called quasi-equity because it combines features of equity and those of debt. It is preference because it is preferred to ordinary share capital
EQUITY FINANCE – For small companies, this is personal savings (contribution of owners to the company). For large companies
equity finance is made of ordinary share capital and reserves; (both revenue and capital reserves).
- Both may be permanent if preference share capital is irredeemable (convertible).
- Both are naked or unsecured finances.
- Both are traded at the stock exchange
- Both are raised public limited companies only
- Both carry residue claims after debt.
- Both dividends are not a legal obligations for the company to pay.
Differences between Preference and Equity Finance
Ordinary share capital
- Has a residue claim both on assets and profit.
- Carries voting rights
- Reduces the gearing ratio
- Variable dividends hence grow over time
- Permanent finance
- Easily transferable
Preference share capital
- Has a superior claim
- No voting rights
- Increases the gearing ratio
- Fixed dividends hence no growth
- Usually redeemable
- Not easily transferable