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CMA Intermediate · Business Laws and Ethics · Rights of Shareholders

Which of the following preference share features is expressly stated in Section 43 as NOT preventing the capital from being treated as preference capital?

Capital remains preference capital even if it has a right to participate, fully or to a limited extent, in dividends along with non-preferential capital, in addition to its fixed preferential dividend. Section 43 Explanation (iii) says so, whereas lacking preferential rights would defeat preference status.

  1. AA right to participate in dividends with equity capital in addition to the preferential dividendCorrect
  2. BA right to vote on every resolution at all times
  3. CAbsence of any preferential right to repayment on winding up
  4. DAbsence of any preferential right as to dividend

Explanation

Explanation (iii) to Section 43 says capital is deemed preference capital even if, besides the preferential dividend, it has a right to participate fully or to a limited extent with capital not entitled to the preferential right. Preference capital must carry preferential rights as to dividend and repayment, so the other options describe features that fail that test.

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