Glossary · Investing Basics
Preference Shares
A class of shares that rank above ordinary shares in terms of dividend payments and asset distribution in the event of liquidation. Preference shareholders typically receive a fixed dividend regardless of the company's performance, but generally do not have voting rights.
01—What is Preference Shares?
The definition — and what it means in practice.
Preference shares are a class of equity that sit ahead of ordinary shares for dividend payments and for getting paid from a company’s assets if it is liquidated. They commonly pay a fixed dividend set in the terms of issue, so the payout is less directly tied to year‑to‑year profits than ordinary dividends. In most cases, preference shareholders do not have voting rights on routine company matters.
They matter because they change the trade-off between income, control, and downside protection. Preference shares may suit investors who prioritise more predictable cash dividends and a higher claim than ordinary shareholders if a business fails. However, they still carry company risk and can be less liquid than ordinary shares. Understanding the specific terms of an issue (dividend rate, any conversion features, and conditions) is essential.
If a company has preference and ordinary shares, the preference shares usually get their fixed dividend first, and ordinary shareholders are paid only after that.
- Rank above ordinary shares for dividends and asset distribution on liquidation.
- Often pay a fixed dividend set in the issue terms, not a variable payout linked to profits.
- Usually have limited or no voting rights compared with ordinary shares.
- Still carry issuer (company) credit and business risk; not the same as a bond.
- Always check the issue terms, as features can vary widely.
02—How preference shares works on the PSX
The Pakistan-specific rules, conventions, and numbers.
On the Pakistan Stock Exchange (PSX), you may encounter preference shares as a separate listed security from a company’s ordinary shares. Like other listed shares, they are held electronically at the Central Depository Company (CDC) and trades clear through the National Clearing Company of Pakistan Limited (NCCPL). Settlement in the cash market is T+1, meaning delivery and payment complete one business day after the trade date.
Cash dividends on listed shares in Pakistan are declared as a percentage of face value; most listed shares have a Rs 10 face value. In practice, a declared percentage translates into rupees per share on that face value. Investors also need to account for withholding tax on cash dividends: 15% for income-tax filers and 30% for non-filers. Preference shares can therefore be analysed partly through their dividend terms and after-tax cash flows.
When trading preference shares, the same practical trading considerations apply as for equities: liquidity can vary, orders match through the market order book, and daily price limits (circuit breakers) apply for most equities. For retail investors, the key is to confirm the exact security being traded (preference versus ordinary) and to track the relevant corporate action dates for dividends using exchange information.
03—Common misconceptions
Where investors most often get this wrong.
Preference shares are risk-free because the dividend is fixed.
A fixed dividend is a promise in the terms, not a guarantee of payment. If the company cannot pay or is restricted, dividends may be delayed or missed.
Preference shares are the same as bonds.
Preference shares are equity, not debt. They usually have no maturity date and sit behind lenders in liquidation, even though they rank above ordinary shareholders.
Preference shareholders always get to vote like ordinary shareholders.
Preference shares generally have limited or no voting rights on routine matters. Any voting rights depend on the specific issue terms.
04—Using preference shares on BSL
Where this term shows up across the platform — with live data.
- Review listed securities and identify preference versus ordinary issues on the Stocks page.
- Filter and compare dividend-focused listings with the Stock Screener tools.
- Track dividend-related corporate action timing using the Ex Dates calendar.
- Learn how cash payouts are treated by reading the Withholding Tax glossary entry.
05—Frequently asked questions
What investors ask about preference shares on the PSX.
Frequently Asked Questions
Preference shares are a class of listed equity that usually pay a fixed dividend and rank ahead of ordinary shares for dividends and for claims on assets if a company is liquidated. They typically do not provide the same voting rights as ordinary shares. On the PSX they trade as a separate listed security from a company’s ordinary shares.
Cash dividends on listed shares in Pakistan are declared as a percentage of face value; most listed shares have a Rs 10 face value. The declared percentage can be translated into rupees per share using that face value. The actual payment depends on the company declaring and paying the dividend according to the issue terms.
Generally, preference shares do not have voting rights on routine company matters, while ordinary shares usually do. Any voting rights for preference shareholders depend on the specific terms of the issue, so it is important to check the security’s documented features rather than assume voting access.
Cash dividends on listed shares are subject to withholding tax in Pakistan. The withholding tax rate on cash dividends is 15% for income-tax filers and 30% for non-filers. This applies to cash dividends regardless of whether the shares are ordinary or preference, where a cash dividend is paid.
Preference shares rank above ordinary shares for distribution from a company’s assets in liquidation. That means preference shareholders are paid before ordinary shareholders. However, they still rank behind the company’s lenders and other senior claims, so recovery is not assured.
06—Related terms
Keep building the picture.
The most common form of share capital, entitling holders to proportional ownership of a company. Ordinary shareholders may receive dividends, subject to profitability and directors' recommendations, and typically retain voting rights.
A portion of a company's profits distributed to shareholders. Can be in the form of cash, bonus shares, or a combination of both.
A direct payment made by a company to its shareholders, usually from profits, expressed as a rupee amount per share. Subject to withholding tax in Pakistan.
The nominal value of a share as stated in a company's charter. In Pakistan, most listed companies have a face value of PKR 10 per share, though this varies. For bonds, the face value is the amount repaid at maturity.
The cutoff date for determining which shareholders are eligible to receive a declared dividend. Investors who buy shares on or after the ex-dividend date do not receive that particular dividend.
The ease with which a security can be bought or sold without significantly affecting its price. High-liquidity stocks have large trading volumes and narrow bid-ask spreads.
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