Explain any three merits and three demerits of raising funds through preference shares

cbse
sources-of-business

#1

Merits of Preference Shares
(i) Fixed Return The dividends to be paid to the preference shareholders are fixed as compared to the equity shareholders. The company can thus maximise the profits that are available on the part of preference shareholders.
(ii) Absence of Charge on Assets Preference shares have no payment of dividends thus no charges are levied on the assets of the company.
(iii) 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. .
Demerits of Preference Shares
(i) Absence of Voting Rights The preference shareholders do not possess the voting rights in the personal matters of the company.
(ii) High Rate of Dividends The company has to pay higher rates of dividends to the preference shareholders as compared to the common shareholders.
(iii) Tax Disadvantages In case of preference shareholders, the taxable income of the company is ,
not reduced while in case of common shareholders, the taxable income of the company is reduced.