Lesson 3 of 7 · All lessons in this module
  1. Equity versus debt, why companies issue shares, and equity in global markets
  2. Equity instruments: shareholder rights, the residual claim and equity cash flows
  3. Preference shares: cumulative, participating and convertibleVideo lesson
  4. Preference share contingencies: upside, downside, and how preference sits between debt and common
  5. Publicly listed versus private companies: why list, who stays private, and how the two differ
  6. Private versus public equity: venture capital, buyouts and PIPEs
  7. Private equity across the company life cycle: venture, growth, buyout, special situations and PIPE dilution

This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.

Lesson 3 of 7 · 13 min

Preference shares: cumulative, participating and convertible

Preference shares sit between debt and common equity: a fixed, higher dividend and priority over common shareholders, but no promise and usually no vote.

In short

  • Preference shares rank above common shares for dividends and liquidation, but below all debt.
  • They usually have no voting rights and no share in operating performance; the dividend is fixed and usually higher than the common dividend, so it is non-discretionary in curriculum wording, yet not a contractual obligation.
  • Like common shares they can be perpetual and callable or putable.
  • Cumulative: missed dividends accrue and must be paid before any common dividend. Non-cumulative: missed dividends are lost, though the current preferred dividend still comes before any common dividend.
  • Participating: fixed dividend plus extra if profits exceed a set level (and possibly extra in liquidation). Used more by smaller, riskier firms.
  • Convertible: can be exchanged for a set number of common shares; popular in venture capital and private equity.

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