What is the difference between cumulative and non - cumulative share?

A term sheet may refer to dividends as being either cumulative or non-cumulative. The key difference is that if the dividend is non-cumulative and the company (through its board) doesn't make a decision to issue a dividend in year one, or doesn't have the cash resources to do so, the next year the divident slate is wiped clean and the company has no obligation to 'catch up' on the issuance of dividends for previous years. What this means is that if the dividend is not issued in year one and a dividend were to be issued in the next year, the company would not be obligated to issue dividends cumulatively or retroactively for previous years in which the company was unable to issue a dividend. This can also have an effect on the sale of the company. A cumulative dividend clause will trigger a payout to preference shareholders that includes what they would have been paid by way of dividend for all those years they never received one and this payment would rank before any sharing of the exit rupees with ordinary shareholders. read less