The scope for capital appreciation in these types of preference shares may be limited because they do not participate in the profits of the company. Their value is not affected by the over-performance or under-performance of the company.
A preference share holder is a shareholder of the company. A debentur holder is a creditor of the company.
A debenture is usually secured on the assets of the company. A preference share is not secured since it is not a borrowing.
The coupon interest on the debenture is an expense to be paid by the company before calculating the profits on which tax has to be paid. Dividends on preference shares are paid from the residual profits of the company after all external liabilities, including tax, have been paid.
An existing shareholder has a right to proportionate participation in all capital raising activity. Thus the term Rights issue. Participation in a rights issue is voluntary.
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