Equity Shares: 

1. Equity shares represent the ownership of a company and thus the capital raised by issue of such shares is known as ownership capital or owner’s funds.

2. Equity shares are shares, which do not enjoy any preferential right in the matter of claim of dividend or repayment of capital.

3. Equity shareholders are regarded as the owners of the company who exercise their authority through the voting rights they enjoy.

Preference Shares:

1. The capital raised by issue of preference shares is called preference share capital.

2. The preference shareholders enjoy a preferential position over equity shareholders in two ways:

(i) Receiving a fixed rate of dividend, out of the net profits of the company, before any dividend is declared for equity shareholders. 

(ii) Receiving their capital after the claims of the company’s creditors have been settled, at the time of liquidation.

3. In other words, as compared to the equity shareholders, the preference shareholders have a preferential claim over dividend and repayment of capital. Preference shares resemble debentures as they bear fixed rate of return. Also as the dividend is payable only at the discretion of the directors and only out of profit after tax, to that extent, these resemble equity shares.

4. Thus, preference shares have some characteristics of both equity shares and debentures. Preference shareholders generally do not enjoy any voting rights.