Merits of Preference Shares
The merits of raising funds through preference shares are:
1. Consistent Income: Preference shares provide reasonably consistent income in the form of a fixed rate of return and investment safety.
2. Reasonable Safety of Returns: Preference shares are useful for investors seeking a fixed rate of return with low risk.
3. No Interference in Management: It has no effect on equity shareholders’ control over management because preference shareholders do not have voting rights.
4. Trading on Equity: Paying a fixed dividend rate to preference shares may enable a company to declare higher dividend rates to equity shareholders in good times.
5. Repayment of Principal Amount: In the event of a company’s liquidation, preference shareholders have a preferential repayment right over equity shareholders.
6. No Charge on Assets: Preference capital does not impose any kind of charge on a company’s assets.
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