When a company issues shares, it can issue two types, equity shares and preference shares. Both represent ownership in the company, but they work very differently.
Equity Shares
Equity shares are the most common type traded on the stock market. When you buy a stock on NSE or BSE, you are almost always buying equity shares.
Equity shareholders:
- Have voting rights in the company
- Receive dividends only if the company declares them and the amount can vary
- Are the last to be paid if the company winds up
- Benefit the most when the company grows
Preference Shares
Preference shares come with a fixed dividend that is paid before equity shareholders receive anything. They also have priority over equity shareholders in a liquidation.
Preference shareholders:
- Receive a fixed dividend (similar to interest on a bond)
- Generally do not have voting rights
- Get paid before equity holders if the company winds up
- Have limited upside they do not benefit from the company’s growth beyond the fixed dividend
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