DIFFERENCE BETWEEN PREFERENCE AND ORDINARY SHARES

Companies issue two different types of shares to investors: preference (or preferred) and
ordinary (also known as common). Several differences exist between these two types of shares.

1. OWNERS

Ordinary shareholders are commonly owners of the company but preference shareholders are
creditors of the company.

2. DIVIDEND RATE

The company uses a specific rate to calculate the dividend on preference shares. The company
multiplies this rate by the stated value of each share to determine the amount to pay out in
dividends on preference shares. Ordinary shares have no specific dividend rate. If the company
chooses to issue a dividend, it is not locked into paying a specific amount on each share. Instead,
it chooses the amount it wants to pay on ordinary shares.

In dividend payment preference shareholders get dividend at a pre-fixed rate. This way
preference shares are somewhat like fixed income security.

3. DIVIDEND DISTRIBUTION

Preference shareholders enjoy the benefit of receiving their dividend distribution first when
company calculates the dividend amount to pay each shareholder. Ordinary shareholders receive
their dividend payments last, assuming the company opts to pay them.

4. LIQUIDATION

When a company liquidates, it pays its creditors first. Any value remaining after satisfying the
creditors is then allocated to the shareholders. Preference shareholders receive their share of the
company’s assets based on the value of the shares they own. After the payments to the
preference shareholders, any value remaining is divided among the ordinary shareholders based
on the number of shares each shareholder owns.

5. VOTING RIGHTS

Ordinary shareholders receive the right to vote on major company decisions, including mergers
or acquisitions. These shareholders are entitled to one vote for each share they own. If anyone
has more shares, he has greater authority in voting according to his number of shares. Preference
shareholders typically receive no right to vote on company decisions.
6. ORDINARY SHARES ARE RISKIER THAN PREFERENCE SHARES

Ordinary shares are riskier than preference shares, in terms of uncertainty in dividends payments
and lower claim in company assets as opposed to the fixed, and usually cumulative dividends
and priority asset claims for preferred shares.

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