Question

Outline four advantages and four disadvantages of preference share capital source of finance

Answer 1

Advantage of Perfernce Share Capital

1. shareholders get the profit of the company in form of dividends before Equity shareholders at a fixed dividend rate.
2. These shares come with a fixed rate of dividend and a preferential right to avail profits and claim assets during liquidation
3. The rate of dividend is fixed.
4. The shareholders will have first right after the repayment of debts.

Disadvantage of Perfernce Share Capital

1. Do not have any participation rights in the company’s management.
2. They are not entitled to voting rights and hence do not really possess the power to control or influence company-oriented decisions.
3. Costly source of Finance