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State the disadvantages of using preference share capital.

State the disadvantages of using preference share capital.

Answers

Lellah
1. Cumulative preference shares impose a heavy burden to the company as any arrears have to be paid.
2. The use of preference share capital increases the company level of gearing and thus it exposes it to dangers of receivership and consequent liquidation.
3. Raising preference share capital involves a lot of formalities and floatation costs.
4. Preference share capital is raised from the public and if the company is not financially strong it may be difficult to raise.
5. The share carries no voting rights and as such they cannot influence a company decision making process.



Lellah answered the question on November 8, 2021 at 07:41

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