Define: Cumulative Preference Share

A cumulative preference share is a type of share in a company that entitles the shareholder to receive a fixed dividend before any dividends are paid to common shareholders. If the company is unable to pay the dividend in a particular year, it accumulates and becomes payable in future years.

The dividend for cumulative preference shares is usually calculated as a fixed percentage of the share’s par value. For example, if the par value is $100 and the dividend rate is 5%, the annual dividend would be $5 per share.

No, a company cannot skip paying dividends on cumulative preference shares. If the company is unable to pay the dividend in a particular year, it accumulates and becomes a liability that must be paid in future years before any dividends can be paid to common shareholders.

If a company fails to pay the accumulated dividends on cumulative preference shares, it may be considered a default. In such cases, the shareholders of cumulative preference shares may have the right to take legal action against the company to enforce the payment of the accumulated dividends.

In most cases, cumulative preference shares cannot be converted into common shares. They are typically issued as a separate class of shares with specific rights and privileges, including the fixed dividend payment.

Cumulative preference shares usually do not have voting rights. They are primarily issued to provide a fixed income stream to shareholders and do not carry the same voting power as common shares.

Yes, a company may have the option to redeem cumulative preference shares at a predetermined price or on a specified date. This redemption can be voluntary or mandatory, depending on the terms outlined in the share agreement.

Yes, cumulative preference shares are generally transferable, subject to any restrictions mentioned in the share agreement or applicable laws. Shareholders can sell or transfer their shares to other parties, subject to compliance with legal requirements and any restrictions imposed by the company.

Yes, cumulative preference shareholders have priority over common shareholders in the event of liquidation. They are entitled to receive their accumulated dividends and the return of their capital before any distribution is made to common shareholders.

Yes, a company can issue different classes of cumulative preference shares with varying dividend rates, redemption terms, and other rights. This allows companies to tailor the terms of the shares to meet specific financing or capital structure needs.