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Share Capital: Meaning, Kinds, and Presentation of Share Capital in Company's Balance Sheet
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Difference between Preference Shares and Equity Shares

Last Updated : 21 Apr, 2025
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Life-blood of any business is finance. Sufficient finance for the company helps to grow and expand the company. The financial needs of any business are concerned with the acquisition and utilisation of funds. It is done through planning, acquiring, utilising, managing, and controlling funds in connection with the business. Issuing shares is one of the most prominent ways to arrange funds for the business. The capital of a company is divided into large units with definite face value called shares.

Share is always a fixed denomination with a distinct number and has a face value. A company with share capital can issue shares at its very inception for raising capital and cannot be issued or transferred in fractions. Shares can be offered directly for public subscriptions. It can be fully or partially paid up.

A public limited company can issue only two types of shares:

A. Equity Shares

B. Preference Shares 

Difference-between-Preference-Shares-and-Equity-Shares

What are Equity Shares?

Equity Shares have no special privilege attached. Equity Shares are the shares that have no preferential right on payment of dividends and repayment of the capital in case of winding up. Equity Shares have no fixed rate of dividend. The rate of Dividend of equity shares depends upon the earned profit of the company of the accounting year. Equity Shares are called risk capital because these shares are more speculative. Equity Shares are the most ' risk and rewards' shares of the company. The risk involved is losing part or all the value of shares if the business incurs losses. Rewards of equity shares involve payment of higher dividends and appreciation in the market value.

Equity Shares are the permanent capital of the company with no mortgage of assets of the company, as it is not redeemable shares. The risk of Equity Shares is diffused with the option of issuing further shares for raising capital. Equity Shares are profitable during inflation, and also Equity Shareholders have the chance to get bonus shares when the company earns huge profits. Equity Shares enjoy the perks of receiving higher dividends and appreciation of the value of assets.

What are Preference Shares?

Preference Shares have special privileges attached. Preference Shares have preferential rights on payment of dividends and repayment of the capital in case of winding up. Preference Shares have a fixed rate of dividend. The Rate of Dividend of the preference share is affixed with the issue of the share. Preference Shares enjoy the preferential right to receive divided during the year before equity shares. On liquidation of the company, preference shares are entitled to be repaid before the equity shares.

Preference Shares are redeemable and convertible into equity shares on the terms of the issue of shares. The risk involved with investment is less as the rate of return as dividend is fixed with the issue. Preference Shares strengthen the financial position of the company by adding to the equity base. Preference Shares have a longer maturity period, and it saves the company from paying a higher rate of interest by issuing debentures.

Difference between Preference Shares and Equity Shares:

Basis

Equity Shares

 Preference Shares

Right to DividendEquity shareholders receive dividends after preference shareholders are paid. Preference shareholders receive dividends before the equity shareholders are paid. 
Right to VoteEquity shareholders have the right to vote in the decisions of the company, i.e., in all circumstances. Preference shareholders have the right to vote only in special circumstances. 
Right to Participate Equity shareholders have the right to participate in the management of the company. Preference shareholders do not have the right to participate in the management of the company. 
Rate of DividendRate of dividend of equity shares depends on the profit of the company. The Board of directors decides the rate of dividend and is approved by the shareholders. Rate of dividend of preference shares is fixed. 
Arrears of DividendOn equity shares, no arrears of dividend is paid. Dividends on equity shares are declared every year and if not declared during the year, dividends are not accumulated to be paid in coming years. Arrears of Dividend is given to cumulative preference shareholders before the dividend is distributed to equity shareholders.
ConvertibilityEquity Shares are not convertible. Preference Shares can be converted to equity shares if the terms of the issue provide so.
RedemptionThe company may buy back its equity shares. Preference Shares are redeemable. 
Refund of CapitalIn the case of winding down the company, Equity shareholders receive their capital after preference shareholders capital are paid. In the case of winding down the company, Preference shareholders are repaid their capital before equity shareholders.                                                                                                                                 
Nominal Value of SharesEquity Shares have a low nominal value of shares.Preference Shares have generally high nominal value.
Appeal for investorsEquity Shares are appealing purchases for adventurous investors.Preference Shares are appealing purchases for conservative investors. 
Risk InvolvedHigh risk is involved in terms of return and repayment. Low risk is involved in terms of return and repayment.
Market Value of SharesThe value of equity shares fluctuates.The value of preference shares does not fluctuate.

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Share Capital: Meaning, Kinds, and Presentation of Share Capital in Company's Balance Sheet

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    2 min read
    Accounting Treatment of Goodwill in case of Dissolution of Firm
    Goodwill is nothing but a monetary value of a reputation of a business firm in the market, earned by the firm by serving its customers. In a Partnership firm, Goodwill is treated like an asset; every partner has a right over the firm's goodwill up to his/her share in the business.In case of the Diss
    2 min read
    Accounting Treatment of Joint Life Policy in case of Dissolution of a Firm
    What is Joint Life Policy?Joint Life Policy is a life policy that gives coverage against the death of the policyholder, under which the coverage is of a minimum of two persons and the pay-out is on a first-death basis. Since the Partnership firm is a business run by at least two people, the partners
    3 min read
    Accounting Treatment of Contingent Assets and Contingent Liabilities in case of Dissolution of a firm
    Contingent Assets: A Contingent Asset is an economic gain that may come into existence in near future as a result of some past action. The existence of such assets is completely uncertain and beyond the control of the entity. Example: Any property of a firm under some legal suit, and warranty receiv
    3 min read

    Part-B

    Chapter 1: Accounting for Share Capital

    Company and its Types
    A company is one of the most important and prominent forms of business organization. It can be described as a voluntary association of individuals, having a common purpose, who agree to pool their funds and unite to achieve the said goals. It can be called an artificial person created under the juri
    7 min read
    Shares : Meaning, Nature and Types
    What are Shares?When the total capital of the company is divided into units of small denominations, it is known as shares. For example, if the total capital of the company is ₹ 5,00,000, divided into 10,000 units of ₹50 each, each unit of ₹50 will be called a share (of ₹ 10 each). Thus, in the above
    5 min read
    Difference between Preference Shares and Equity Shares
    Life-blood of any business is finance. Sufficient finance for the company helps to grow and expand the company. The financial needs of any business are concerned with the acquisition and utilisation of funds. It is done through planning, acquiring, utilising, managing, and controlling funds in conne
    5 min read
    Share Capital: Meaning, Kinds, and Presentation of Share Capital in Company's Balance Sheet
    What are Shares?When the total capital of the company is divided into units of small denominations, it is known as shares. For example, if the total capital of the company is ₹ 5,00,000, divided into 10,000 units of ₹50 each, each unit of ₹50 will be called a share (of ₹ 10 each). Thus, in the above
    5 min read
    Difference between Capital Reserve and Reserve Capital
    Capital Reserve and Reserve Capital are most often confused same. However, the former is a reserve created out of the Capital Profits of a firm; whereas, the latter is a part of the increased nominal capital or uncalled share capital of an organisation which shall not be called up, except in the eve
    3 min read
    Accounting for Share Capital: Issues of Shares for Cash
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    9 min read
    Issue of Shares At Par: Accounting Entries
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    3 min read
    Issue of Shares at Premium: Accounting Entries
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    4 min read
    Issue of Share for Consideration other than Cash: Accounting for Share Capital
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    5 min read
    Issue of Shares: Accounting Entries on Full Subscription with Share Application
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    2 min read
    Calls in Arrear: Accounting Entries with Examples on Issue of Shares
    Calls in Arrear refer to the amount of money that a shareholder has not yet paid to a company on shares they have agreed to purchase. In the context of a company issuing shares, the payment for these shares is often requested in installments, known as "calls." If a shareholder does not pay an instal
    4 min read
    Calls in Advance: Accounting Entries with Examples on Issue of Shares
    Calls in Advance is the amount of future calls which is received by the company in advance. Calls in Advance is just opposite to Calls in Arrear. It is a situation when the shareholders of a company pay the amount not yet called upon their shares. Section 50 of the Companies Act, 2013 says that the
    4 min read
    Oversubscription of Shares: Accounting Treatment
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    4 min read
    Oversubscription of Shares: Pro-rata Allotment
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    4 min read
    Oversubscription of Shares: Pro-rata Allotment with Calls in Arrear
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    5 min read
    Forfeiture of Shares : Accounting Entries on Issue of Shares
    What is Forfeiture of Shares?Cancellation of shares of a shareholder who fails to pay the amount due on allotment or on any call within the specific time period is known as Forfeiture of Shares. A company or its directors can forfeit the shares only if its Articles of Association allow for the same.
    5 min read
    Accounting Entries on Re-issue of Forfeited Shares
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    7 min read
    Disclosure of Share Capital in the Balance Sheet: Accounting Entries on Issue of Shares
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    3 min read

    Chapter 2: Issue and Redemption of Debentures

    Issue of Debentures: Meaning, Characteristics, Purpose of Issuing Debentures and Example
    A debenture can be described as a debt instrument issued by a company to the public in order to raise funds for medium or long-term usage. It is just like a bank loan, with debt obligation and liability for interest payment, but instead of borrowing from a bank, these are issued and traded in the ca
    5 min read
    Types of Debentures
    What is Debenture?A debenture can be described as a debt instrument issued by a company to the public in order to raise funds for medium or long-term usage. It is just like a bank loan, with debt obligation and liability for interest payment, but instead of borrowing from a bank, these are issued an
    4 min read
    Difference between Shares and Debentures
    Issuing of Shares and Debentures are two of the most prominent source of finance for any business. By issuing shares and debentures, any public company can generate finance from the market. Finance required by the business to establish and run its operations is known as Business Finance. No business
    4 min read
    Issue of Debentures: Accounting Treatment of Issue of Debenture and Presentation of debentures in balance sheet (with format)
    What is a Debenture?A written instrument or document which is issued by the company acknowledging the borrowings is known as Debenture. In this document, the terms of repayment of principal and payment of interest at a specific rate are stated. According to Section 2(30) of the Companies Act, 2013,"
    2 min read
    Issue of Debenture at Par and Premium
    What is a Debenture?A written instrument or document which is issued by the company acknowledging the borrowings is known as Debenture. In this document, the terms of repayment of principal and payment of interest at a specific rate are stated. According to Section 2(30) of the Companies Act, 2013,"
    3 min read
    Issue of Debentures for Consideration other than Cash
    Issue of Debentures for consideration other than cash means that the company has not received amount (in cash or by cheque) against the debentures issued. Debentures may be issued for consideration other than cash in the following situations:To promoters of the company for rendering services for inc
    4 min read
    Issue of Debenture as Collateral Security
    What is Issue of Debentures as Collateral Security?A company may have to issue debentures as a subsidiary or secondary security in addition to the principal security when it takes a loan from a bank or from other party, this is known as Issue of Debentures as Collateral Security. Collateral security
    3 min read
    Interest on Debentures
    A debenture can be described as a debt instrument issued by a company to the public in order to raise funds for medium or long-term usage. It is just like a bank loan, with debt obligation and liability for interest payment, but instead of borrowing from a bank, these are issued and traded in the ca
    3 min read
    Redemption of Debentures
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    4 min read
    Redemption of Debentures: Meaning, Sources and Rules regarding Redemption
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    5 min read
    Redemption of Debentures in case of Lump-Sum
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    3 min read
    Redemption of Debentures in case of Installment
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    2 min read
    Redemption of Debentures in case of Purchase of Own Debentures
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    4 min read
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