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by Undo Capital
December 15, 2025
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What Are Preference Shares?

Preference shares are a class of equity that provides holders with priority economic rights, such as fixed dividends or preferential payouts on exit, ahead of ordinary shareholders.

Preference Shares Meaning

The preference shares' meaning centres on enhanced economic protection. A typical preference shares definition includes rights such as a fixed dividend, liquidation preference or priority return before ordinary shareholders receive anything. These features can shape investor negotiations and affect dilution modelling. 

However, preference shares are generally not eligible for SEIS/EIS because HMRC requires investors to receive non-preferential ordinary shares for preference shares, as explained in the context of UK startup funding and tax relief rules. 

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Disclaimer: Our services are designed to assist startups and businesses with company formation, legal agreements, and funding-related documentation. We do not provide investment advice, financial advice, or tax advice, nor are we regulated by the Financial Conduct Authority (FCA). Participating in startups and early-stage enterprises carries inherent risks, including limited liquidity, absence of dividends, potential loss of investment, and dilution. Any decisions regarding investments should be made independently by the investor as part of a well-diversified portfolio.