Preference Share Agreement – Understanding the Basics

As an investor or shareholder, it is important to understand the types of shares and investment options available to you. One such investment option is preference shares. Preference shares are a type of share that offers certain preferential rights and privileges to the shareholders. A preference share agreement is a legally binding document that outlines the terms and conditions of the preference shares and the rights and responsibilities of the shareholders.

What are preference shares?

Preference shares are a type of share that offer preferential treatment to the shareholders as compared to the common shareholders. The preference shareholders receive a fixed dividend amount before the common shareholders receive any dividend. This means that even if the company’s profits are low or the dividends for the common shareholders are not declared, the preference shareholders still receive their fixed dividend.

Preference shares also offer preference in the payment of capital in the event of the company’s liquidation. In such a scenario, the preference shareholders are paid their capital before the common shareholders. The preference shareholders do not have any voting rights, except in certain circumstances as mentioned in the preference share agreement.

Understanding the preference share agreement

A preference share agreement is a legal document that outlines the terms and conditions of the preference shares. It is an agreement between the company and the preference shareholders. The agreement specifies the rights and responsibilities of the preference shareholders and the company.

The preference share agreement specifies the dividend rate, the manner in which the dividend is to be paid, and the frequency of the dividend payment. It also specifies the redemption date and the redemption price of the preference shares. The redemption date is the date on which the preference shares will be repaid by the company to the shareholders. The redemption price is the price at which the preference shares will be redeemed.

The preference share agreement also specifies the circumstances under which the preference shares can be converted into common shares. This is called a convertible preference share. The preference share agreement also specifies the circumstances under which the preference shares can be called back or repurchased by the company.

Conclusion

A preference share agreement is a legal document that outlines the terms and conditions of the preference shares. It is important for the preference shareholders to carefully read and understand the terms and conditions of the agreement before investing in the preference shares. The preference share agreement specifies the rights and responsibilities of the preference shareholders and the company, including the dividend rate, the manner in which the dividend is to be paid, and the frequency of the dividend payment. It also specifies the redemption date and the redemption price of the preference shares. The preference share agreement is a valuable document that helps in protecting the interest of the preference shareholders and maintaining the trust and confidence of the investors in the company.