Difference between ordinary and preference share

Running Head: MANAGEMENT 0
MONEY AND CAPITAL
MARKET ANALYSIS

MANAGEMENT 1
Table of Contents
Introduction................................................................................................................................2
Difference between ordinary and preference share....................................................................2
Types of preference shares v/s equity shares.............................................................................6
Illustration..................................................................................................................................9
WOW per Share.....................................................................................................................9
WOW Capital Structure (as on 7 May 2019).......................................................................10
Conclusion................................................................................................................................11
References................................................................................................................................12

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Introduction
Finance is one of the major aspects for a company to initiate and to run business. It is
important for the company to make appropriate decision regarding raising money for the
business. Financial market consists of two major markets that are capital market and money
market. For the short term purpose of borrowing or lending money, money markets are the
appropriate place with effective financial instruments (Chang & Liu, 2009). Capital market is
the appropriate place to raise money for long term security and they affect the capital of the
company directly or indirectly. The report will discuss one of the major instruments of capital
market that is “Shares.”
Shares are the units of personal owner interest in financial assets that would include
distribution of profit in corporations and returns from these instruments are in form of
dividend. The shareowners are said to be shareholders of the company and their control over
the company’s management depends on type of share they are holding in the company (Chari
& Chang, 2009). The two major shares are preferred shares and ordinary shares also
identified as equity shares. These two shares and their differentiation would be discussed in
report further.
Difference between ordinary and preference share
It is true that before beginning any business, it is required by the entrepreneur to raise
the capital, resource, or investment. The amount of capital depends on project as well as size
of the firm. Equity shares are also called as ordinary share. There are times when ordinary
shares are known as the common stock. Shareholders having ordinary shares indicate they are
having the ownership in company based on the portion amount of shares. For example- of a
person has purchased 30 shares from the 100 shares from ABC Company, it means they have
total 30% stock of the organisation. These shareholders also hold the voting right in the
organisation. In the general meeting of the organisation, these shareholders get the privilege
to cast their vote. They also have the authority to remove as well as appoint the auditors as
well as directors in the company. Each of the shareholders has the right to gain the profit that
company has earned. In the case of profit, ordinary shareholders also get the right to receive

MANAGEMENT 3
some part of the dividends (Tappeiner et al, 2012). At the initial stage of the company, they
do not pay the dividend. The whole money that is achieved is reinvested in the business for
bringing development. Sometimes, after paying the liability, some of the amounts is paid to
the shareholders. However, it is found that equity shareholders have no right to achieve the
arrears dividend for the past ages. At the time of winding up of the firm, the company is
required to pay the salaries, taxes, costs and statutory assistances monitored by its creditors.
After paying to the entire creditors, the capital that is remained allocated to the shareholders.
After paying to the preference shareholders, ordinary shareholders receive the share in
capital. It is also found that the weight of each shareholder vote depends on the percentage of
ownership that they have in the company (Barclay, Holderness & Sheehan, 2008).
Preference shares signify the stake of ownership in the organisation, which is known
as preferred stock. Preference shares have both debts as well as equity characteristics. These
also have the priority claim over the earning and asset of the company. The preference
shareholders do not carry voting rights in the company. However, they can vote on those
matters that directly affect the right such as resolution of the winding up of company. In
addition, preference shareholders also have the right to claim for the dividend that is not paid
for not more than the 12 months. Preference shareholders also enjoy the first priority for
paying the dividend and profit. They are also paid at the first as company is also required to
pay the liabilities. Apart from this, they are paid before the equity shareholders of the
organisation. During the windup of the organisation, preference shareholders have the right to
receive capital payment after paying off the claim of creditors during liquidation time
(Cheng, Fung & Leung, 2009). There are several advantages associated with ordinary or
equity shares. It helps in providing the confidence as well as creditworthiness to the
company. Some investors like to take a higher risk. Equity share is the best option of such
investors. It also proves to be best for the company as it is not essential to pay to the equity
shares. It also has various disadvantages associated with the equity shares such as investors
who give more emphasis on the regular income may not prefer the shares. Besides this,
equity shares also have a high cost than raising fund form any other source. In addition to
this, many procedural delays and formalities are involved in the equity shares.
Preferences shares also have several merits and demerits. Firstly, they get the fix rate
of safety and return of the investment (Cronqvist & Fahlenbrach, 2008). It also does not
impact the equity shareholders control over the administration. It is because these
shareholders do not have the voting right. The biggest benefit attached to the preference