By
August 25, 2026
What is the difference between ordinary and preference shares?
The main difference between ordinary and preference shares is the priority and rights given to their holders.
Ordinary shares usually provide voting rights and participation in the company’s future growth. Preference shares normally give priority when dividends or capital are distributed but may provide limited voting rights.
The exact rights depend on the company’s articles of association and the terms attached to each share class.
Ordinary shares are the most common type of shares issued by UK private limited companies.
They typically give shareholders:
Ordinary shareholders are generally paid after creditors and shareholders holding shares with priority rights.
Preference shares normally give their holders priority over ordinary shareholders when dividends or capital are distributed.
They may provide:
Preference shares are often issued to investors who want priority or a more predictable financial return.
Ordinary dividends are usually variable. The amount depends on the company’s distributable profits, directors’ recommendation or decision, and shareholder approval where required.
Preference shares may carry a fixed dividend or a dividend calculated using an agreed formula. If the company pays dividends, preference shareholders are normally paid before ordinary shareholders.
A preference dividend is not automatically guaranteed. The company must have sufficient distributable profits and comply with the rights attached to the shares.
Cumulative preference shares allow unpaid dividends to build up.
If the company cannot pay a dividend in one year, the unpaid amount may carry forward. The outstanding preference dividend will normally need to be paid before ordinary shareholders receive dividends in later years.
With non-cumulative preference shares, unpaid dividends generally do not carry forward.
Ordinary shares usually provide voting rights on matters such as:
Preference shares often have limited or no general voting rights.
However, preference shareholders may be allowed to vote when:
The articles and share terms determine the actual voting rights.
If a company is wound up, its creditors must be paid before money is distributed to shareholders.
Preference shareholders may have priority over ordinary shareholders when the remaining capital is distributed. Ordinary shareholders normally receive whatever remains after creditors and shareholders with priority rights have been paid.
The precise order depends on the rights attached to each share class.
Ordinary shares generally carry more financial risk because ordinary shareholders rank behind preference shareholders for dividends and capital.
However, ordinary shareholders may benefit more if the company grows significantly because they usually participate fully in its increased value and profits.
Preference shareholders may have a more predictable return but might not participate fully in future growth.
Yes. Preference shares may also be redeemable.
Redeemable preference shares allow or require the company to buy them back:
The company must follow the legal rules and the redemption terms contained in its articles or share conditions.
Yes. A person can hold both ordinary and preference shares in the same company.
For example, an investor might hold preference shares for priority returns and ordinary shares to participate in voting and future growth.
Each holding must be recorded correctly in the company’s register of members.
A company may issue preference shares to:
The terms should be carefully drafted so that investors and existing owners understand their rights.
Neither type is automatically better. The appropriate choice depends on the shareholder’s objectives.
Ordinary shares may be better for someone who wants:
Preference shares may be more suitable for someone who wants:
Investors should review all share rights before subscribing or purchasing.
A company may be able to reorganise or redesignate its shares, but the process can require:
The change may also have tax consequences. Professional advice is advisable before altering existing rights.
Ordinary shares usually provide voting rights, variable dividends and participation in the company’s future growth. Preference shares normally provide priority for dividends or capital but may have restricted voting and growth rights.
The class name alone does not determine what a shareholder receives. Always review the articles of association and the specific rights attached to the shares.
