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State the advantages of using preference share capital.

State the advantages of using preference share capital.

Answers

Lellah
1. Riskless leverage advantage. Preference shares provide financial leverage
advantages since preference dividend is a fixed obligation, i.e. non-payment of
preference dividends does not force the company into insolvency.

2. Dividend post-phonability. Preference shares provide some financial flexibility to
the company since it can postpone payment of dividend.
3. Fixed dividend. Preference dividends are restricted to stated amount. Thus
preference shareholders do not participate in excess profits as do the ordinary
shareholders.
4. Limited voting rights. Preference shareholders do not have voting rights except
in case dividend arrears exist. Thus control of ordinary shareholders is
preserved.
5. Rate of return is guaranteed.
6. There is no need to mortgage property on these shares.
Lellah answered the question on November 8, 2021 at 07:40

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