Comparison on Ordinary Shares (OS) vs Preference Shares (PS) in Malaysia

1. What is Ordinary Shares (OS)?

An OS defines a single unit of equity ownership of the company where the shareholder can:

1. Receive the right to cast a vote in decisions involving important company matters where OS holder is influential in the company;

2. The last to receive dividends and only entitle to funds after dividends on PS are paid;

3. No accumulative of dividend from previous years;

4. In the event of liquidation, OS will be the last to receive after creditors & PS are paid;

5. Dividend is not fixed and dividend payments will be determine during AGM;

6. OS defines as single entity of equity ownership of the Company;

7. OS which is also known as ‘common stock’ is riskier than PS but if the company is making money then OS holder will be enjoying higher dividends.

2. What is Preference Shares (PS)?

A PS is a investor who pay almost “ultra-less” attention towards the company who is about to:

1. The dividend payments to PS holder are fixed regardless increase of assets or earnings;

2. PS is cumulative where where the missed our dividend will be carried forward;

3. PS is convertible to OS if the holder is given an option;

4. PS holder is not entitle to vote nor attending AGM or EGM as it is upon invitation and without the right to vote casting, PS holder is only having minimal influential in the company;

5. PS holder receives fixed dividends before OS when the BOD announce distribution of dividends;

6. PH holder is a mixture in features consisting equity and debt as dividend payments is stated clearly;

7. PS holder is having a safer route due to “fixed” dividend but if the company is enjoying good profit, PS holder will be observing a limited possibility for growth in dividends.

OS VS PS

3. Voting

OS: is eligible to participate to EGM or AGM and they are allow to vote during decision making.

PS: is NOT eligible to vote or participation in AGM or involve in any specific amount in distribution of dividend. However, if dividends remain unpaid for more then 12 months from the due date, written reso or upon reso on winding company, PS will have the statutory right to vote.

4. Holder’s Right

OS: Suitable if the holder wants to exercise the certain amount of control (voting), participation (dividends) and growth (capital) of the company.

PS: Investors who are not about to involve in management, opting medium risk compare to OS & better than FD.

5. Shares Conversion

OS: OS is not eligible to convert to PS and the exit point is to having transfer to 3rd party or company.

PS: PS is convertible to OS upon having mandate during AGM/ EGM or pre-determined time frame & rate.

6. Distribution of dividend or during liquidation

OS: OS received their dividends after PS and when during liquidation (priority lines) is creditors, PS, OS ,the directors.

PS: Being paid first during distribution and while during liquidation (priority lines) is creditors, PS, OS then the directors.

7. Rate of dividend (subject to availability of profits)

OS: The rate is determine during AGM (after company tax is paid) among directors & OS holders.

PS: The rate of dividend is fixed during agreement signage.

8. Cumulative

OS: No right to accumulate of dividends from previous years.

PS: The holder is entitle a cumulative right of unpaid dividends of previous years. Example, if the company did not declare dividends in year 2014 due to unavailable profits, the PS will be owed the dividend for 2014 in the following year for 2015 and paid when the company has sufficient profits. As usual, dividends must be paid to PS before any dividend to OS is declared.

9. Repayment of capital upon striking of the company

OS: Upon winding up, the company must pay all cost (wages, statutory contributions & tax) followed by creditors then PS, OS then Directors.

PS: PS holders are entitle to receive the payments after paying all cost and followed by creditors.

10. Participation in surplus profits upon winding up of company

OS: OS holders are entitle to participate in surplus of profits or assets of the company after repayment of capital.

PS: PS holders have no right to enjoy surplus profits unless the right to participate is set out at M & A.

11. Redemption

OS: OS cannot be redeemed by the company or repurchased by the company.

PS: PS may redeemed in the future in the subject of T & C where the redemption must come from available profits after solvency test. Hereby, a premium is applicable during PS redemption and it must be paid out of company’s profit.

12. Time Frame Investment

OS: Long term investment with enjoying surplus distribution of company profits.

PS: Short term investment with having better rate than normal FD.

13. Ownership

OS: Investor’s perspective, OS holders have the ownership as holders are having voting rights & active participation.

PS: Lack of voting rights makes then less of ownership but guaranteed return on investment makes up for this shortcoming.

References:

i.Suruhanjaya Syarikat Malaysia (SSM);

ii. Malaysian Companies Act 2016;