What Are Preference Shares?
Preference shares are a type of equity that gives holders preferential treatment over ordinary shareholders. They typically offer fixed dividend rates and priority in receiving dividends and assets during liquidation.
In Ghana's investment landscape, preference shares provide a middle ground between debt and equity investments, offering more predictable returns than ordinary shares while still providing ownership in the company.
Key Advantage
Preference shareholders receive dividends before ordinary shareholders and have priority claims on company assets if the business is liquidated.
How You Earn Returns
Fixed Dividends
Receive predetermined dividend rates, typically higher than ordinary shares. These are paid before any dividends to ordinary shareholders.
Capital Appreciation
Limited capital growth potential compared to ordinary shares, but more stable and predictable returns.
Example Return Calculation
If you invest GHS 2,000 in preference shares with a 8% fixed dividend rate, you'll receive GHS 160 annually in dividends, regardless of company performance (as long as profits allow).
Types of Preference Shares
Cumulative
Unpaid dividends accumulate and must be paid before ordinary shareholders receive any dividends.
Redeemable
Company can buy back these shares at predetermined prices and dates.
Non-Cumulative
If dividends aren't paid in a year, shareholders forfeit that year's dividend permanently.
Convertible
Can be converted to ordinary shares under specific conditions and timeframes.
Your Rights as a Preference Shareholder
Priority Dividends
Receive dividends before ordinary shareholders
Liquidation Priority
Higher claim on assets than ordinary shareholders
Fixed Returns
Predetermined dividend rates provide stability
Limited Voting
Usually no voting rights unless dividends are in arrears
Risks to Consider
Limited Growth Potential
Fixed dividends mean you won't benefit as much from company growth compared to ordinary shares.
Interest Rate Risk
Rising interest rates can make fixed-rate preference shares less attractive.
Company Performance Risk
If the company can't pay dividends, preference shareholders may receive nothing.
Quick Facts
Legal Framework
Preference shares in Ghana are governed by:
- • Companies Act, 2019 (Act 992)
- • Securities Industry Act, 2016
- • SEC Guidelines on Preference Shares
- • Company Articles of Association