Prior Claim on Income Assets
Preference capital has a prior claim preference over equity capital the income and assets of the company. In other words, preference dividend must be paid before payment of any dividend on the equity capital and in the event of liquidation, the of preference capital must he paid before anything is paid to the equity capital. Thus, the capital stands midway between debentures and equity as regards claim on income and the company. It is also referred to as a senior security. Stated in terms of risk perspective, the capital is less risky than ordinary shares but more risky than debentures.
Preference capital is cumulative in the sense that all unpaid dividends are forward and payable before any ordinary dividend is paid.