What I understood so far from preference shares is, the promotors sell a part of their shares at the current market price to some investment firm as preferential shares. But what good does it do them?

Can someone please explain me the concept of preferential shares in simple terms?

  • No, I am asking how do they raise money. In that question they have answered how are they different from normal stocks. Mar 23, 2014 at 6:04
  • What do you mean how they raise money? They exchange money for the stocks.
    – littleadv
    Mar 23, 2014 at 6:13

1 Answer 1


Preferred stock from Wikipedia:

Preferred shares are more common in private or pre-public companies, where it is useful to distinguish between the control of and the economic interest in the company. Government regulations and the rules of stock exchanges may either encourage or discourage the issuance of publicly traded preferred shares. In many countries, banks are encouraged to issue preferred stock as a source of Tier 1 capital. On the other hand, the Tel Aviv Stock Exchange prohibits listed companies from having more than one class of capital stock.

The company is selling the shares to raise money for operations generally. Imagine if a company wants to raise $1,000,000 by offering 10,000 shares at $100/share in a new preferred share class. This allows the company to get the funds that some investors which may be private firms or the public are buying in the offering.

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