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CS Executive · Capital Market and Securities Laws · Basics of Capital Market

Rohan holds a share of a listed company and receives a fixed-rate preference dividend only if profits are available, and he has priority over equity shareholders when the company is wound up. He has no right to vote on ordinary business. Which instrument does Rohan hold?

Rohan holds a preference share. Such shares give a fixed dividend rate and priority over equity shareholders in dividend payment and capital repayment on winding up, while usually carrying no voting rights on ordinary business. Debentures are debt instruments and equity shares lack fixed dividends and priority.

  1. AEquity share with differential voting rights
  2. BPreference shareCorrect
  3. CConvertible debenture
  4. DZero coupon bond

Explanation

Preference shares carry a fixed dividend rate and priority over equity in dividend and repayment of capital on winding up, and generally lack voting rights on ordinary matters. An equity share with differential voting rights has no fixed dividend or priority. Debentures represent debt, not shares.

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