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Asked a question 2 years ago

How preference share is beneficial and in which cases it has some demerits?

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Preference shares are considered safer in investment. As compare to equity shares. They receive dividend at a fixed rate. Preference shareholder are like creditors. They have no voting right.

Benefits of investing in preference share capital

Regular fixed income : The culminative preference share investors even in case of absence of profits for the company get a regular hold of profits.

Voting rights in company : Voting rights are exerted by the investors in cases relating to the safety of interests. The interests of the preference shareholders are thus safeguarded.

Less chance of losing capital : The preference shareholders possess the preference rights of the repayment of their capital as a result of which there are less.

Having proper security : Preference shareholders possess proper security in case of their shares in cases when the company fails to generate profits.

Now let's check out some of the drawbacks of preference share capital

Less fixed income: The preference shareholders do not possess the voting rights in the personal matters of the company. There is thus no interference in general by the preference shareholders.

Absence of financial burden: As a result of the issuance of preference shares, because dividends are paid only in the presence or profits; absence of profits means absence of dividends.

Capital structure flexibility: By means of issuing redeemable preference shares, flexibility in the company’s capital structure can be maintained because redeemable preference shares can be redeemed under the terms of issue.