Merits and Limitations of Preference Shares

One merit of preference shares is that they provide a safe investment. An example from the text is that preference shareholders have preferential right to claim dividend and capital.

One limitation of preference shares is that they are a costly source of funds for the company. An example from the text is that the rate of preference dividend is greater than the rate of interest on debentures, making it a costly source of funds.

Preference shares do not affect the control of equity shareholders because preference shareholders have no voting right.

<p>Investors who want a fixed rate of return find preference shares useful because they receive fixed dividends.</p> Signup and view all the answers

<p>Preference shares are not suitable for risk takers because the dividend on these shares is paid only when the company earns a profit, making them less attractive to risk takers.</p> Signup and view all the answers