Which type of shares entitles the owner to receive profits before ordinary shareholders?

Preference shares are designed to provide their owners with certain advantages over ordinary shareholders, particularly when it comes to profit distribution. Holders of preference shares are entitled to receive dividends before any profits are distributed to ordinary shareholders. This means that in periods when a company may be making profits but is limited in how much it can pay out, preference shareholders will receive their fixed dividend amount prior to any consideration for ordinary shareholder dividends.

Additionally, preference shares often come with a fixed dividend rate, ensuring that their holders receive a set return on their investments as long as the company is profitable enough to pay dividends. This feature makes preference shares a more secure option for investors looking for more predictable returns, compared to the variable dividends that ordinary shares may offer.

In summary, preference shares are the correct choice because they specifically provide the benefit of receiving profits ahead of ordinary shareholders, ensuring that their interests are prioritized when dividends are declared.