There is great difference between preference shares and equity shares in terms of characteristics and conditions. Preference shares have the characteristics of equity as well as debt instrument. On the other hand, equity shares only represent ownership in the company. Some of the basic differences between preferred and equity shares are given below:

Difference Between Preference and Equity Share

       Distinction Basis            Preference Share                   Equity Share

Preference Right of Dividend Payout

Preference dividend is paid before the equity dividend amount. Payment of equity dividend amount does not have the priority over the payment of the preference dividend.

Preference Right of Repayment of Capital Amount

Preference share has the priority of capital repayment over the equity share capital.

Equity share has the second priority of capital repayment over the preference share.

Rate of Dividend

The rate of dividend is fixed for the preference share. The rate of equity share dividend may vary from time to time depending upon the terms and conditions made by member and directors.

Dividend Arrears

Arrears of the dividend may mount up for these shares. Arrears of equity shares can not be mount up in any case.


They may be converted.  They can not convert

Market Value Fluctuation

Market value of preferred share normally does not fluctuate Market value of equity share fluctuates according to market conditions.

Voting Rights

Preferred share holders have voting rights only at their class meetings but they do not have other voting rights.

Equity share holders commonly have voting rights.

Right of Premium on Redemption

Preferred share holders have right to gain premium on redemption. Equity share holders do not have a right to receive premium on redemption.

Redeem Ability

They are redeemable throughout the entire life of a firm. They are not redeemable throughout the entire life of a firm unless a firm makes a decision to buy back its shares.
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