Require Immediate Support? Free Director Helpline: 0800 644 6080

Real Business Rescue

Free Director Helpline: 0800 644 6080

How Does Company Insolvency Affect Preference Shares?

Share:

Published:

Preference shares and how are these important in company insolvency

There are two main types of shareholders in a limited company: ordinary shareholders and preference shareholders. While ordinary shareholders are issued with “common” stock in a company, preference shareholders will receive “preferred” stock. Preference shares are most commonly issued in larger companies, particularly those which have received outside investment.

10,000+ Tests Completed

Free 60 Second Test

For Ltd Company Directors

 

What are you looking to do?
Choose below:

Differences between preferred stock and common stock

Both types of shareholders have a stake in the company and are able to receive dividends, however, there are also some key differences between the two. Preferred shareholders are not entitled to vote at shareholder meetings, meaning key decisions when it comes to the running of the company can be made without them.

“Shaun really helped me for quick legal advice in a stressful situation where I needed advice QUICK. Called me back within 30 seconds and gave me the advice I needed. Thank you”

Sam

 

Contact the Real Business Rescue Team today

Shareholders and dividends

However, there are some distinct advantages to holding preferred stock. Firstly, preferred shareholders tend to have a fixed dividend which is not linked to the performance of the company. This makes it a less risky investment for investors as they have an element of certainty over the dividends they can hope to extract from the company at designated times although they will not be able to benefit from any increases to dividend payments if the company continues to be successful over a prolonged period of time. Despite being granted a fixed amount, it must be said that this does not guarantee the shareholder will receive dividends at regular intervals. Other shareholders could decide that no dividends will be issued during a certain period; this would mean neither preferred nor ordinary shareholders would receive anything. What is important to remember is that preferred shareholders must receive their dividend before those holding common stock. It is not possible for an ordinary shareholder to receive a dividend yet preferred shareholders miss out.

If dividends are not issued during a period then these can be rolled over (for cumulative preferred shareholders) and be paid when the next lot of dividends are announced. Some preferred shareholders are non-cumulative, meaning if a dividend pay-out is missed, this is not rolled over and instead the shareholder misses out on this payment.

Shareholders and company liquidation

In the event of company liquidation, the benefit of holding preferred stock again becomes apparent. Should the company find itself experiencing financial difficulties and makes the decision to enter a formal liquidation procedure, preferred shareholders will rank before ordinary shareholders when it comes to receiving payment. However, all shareholders will have to wait until all secured, unsecured, and preferential creditors have been paid before they can expect to receive anything. Unfortunately in an insolvent liquidation, there is very often no money left in the company once these liabilities have been settled.

Is your company insolvent?

If your company is insolvent you have a number of legal responsibilities that you must adhere to. Taking steps to protect creditors from further losses by contacting a licensed insolvency practitioner can help ensure you adhere to these duties.
The team are available now -  0800 644 6080

Get a Quote Find Your Nearest Office

How Real Business Rescue help?

If you are considering liquidation and are unsure how the company’s structure will affect this process, contact Real Business Rescue today. We will take you through all the options available and work alongside you to choose the path which is most appropriate for you and your business. Call our expert advisers today to arrange a free no-obligation consultation with a licensed insolvency practitioner with 100 national offices.

reviews io logo

Real Business Rescue are here to help

Still unsure whether liquidation is right for your company? Don't worry, the experts at Real Business Rescue are here to help. Our licensed insolvency practitioners will take the time to understand the problems your company is facing before recommending the best course of action going forward based on your own unique circumstances.

  • UK’s Largest Liquidators
  • 100+ Offices Nationwide
  • 100% Confidential Advice
  • Supported 25,000+ Directors
Meet The Team
Team Of 4

Team of Qualified Experts

Trusted team of experts on hand to assist

Meet The Team
Rbr Accreditations Blue

Looking for immediate support?

Complete the below to get in touch

Here at Real Business Rescue we take your privacy seriously and will only use your personal information to contact you with regards to your enquiry. We will not use your information for marketing purposes. See PRIVACY POLICY
10,000+ Tests Completed

Free 60 Second Test

For Ltd Company Directors

What are you looking to do?
Choose below:

Real Business Rescue Recommended
  • UK's leading business funders
  • Free Brokerage Service
  • Full Market Access
  • Over 30 years' experience
  • Strong relationships with HMRC
  • Support from start to finish
  • 10,000 potential buyers
  • 12,000+ Businesses Sold
  • 60+ Years Experience
Next Steps

We provide free confidential advice with absolutely no obligation.
Our expert and non-judgemental team are ready to assist directors and stakeholders today.