21. If a business has both Ordinary Shares and Preference Shares, which of the following statements are correct?

(i) Ordinary Shareholders have the right to vote at the AGM, but Preference Shareholders do not
(ii) Ordinary Shareholders will always get higher dividends
(iii) Preference Shareholders receive the same dividend year on year
(iv) Ordinary Shareholders are paid first upon liquidation of the company

A. All of them are true

B. (i), (ii) and (iii) are true

C. (i) and (iii) are true

D. (ii) and (iv) are true

Answer : C

C is correct. (i) is true; despite the name, it is the “ordinary” shareholders who have rights to vote. Preference shares carry no voting rights. (ii) may be true sometimes, but at other times it will be Preference Shareholders who receive more money. As (iii) states, their dividend is fixed. For example a £2 5% preference share is one that has a face value of £2 and pays 5% of this value, ie 40p in dividends.
(iv) is false. Preference shareholders rank higher than ordinary shareholders. Preference dividends are paid first, and MUST be paid – or paid as soon as the cash is available. Dividends for ordinary shares may be nil.