Firms issue two types of share – preference and ordinary, with the latter being more common.
Preference shares carry a fixed dividend, rather than a variable one determined by the directors and generally do not carry voting rights at meetings of shareholders as ordinary shares do. As such they behave more like debt than equity although they rank below debt when it comes to paying back investors in the event of liquidation. Usually the preference dividend for the current year and previous years must be paid by the directors before an ordinary dividend can legally be paid out of profits. Note that preference dividends are paid net of standard rate tax.