Explain any two merits and two demerits of raising funds through preference

CBSE Class 11 CBSE Class 11 Business Studies
1

Explain any two merits and two demerits of raising funds through preference shares.

2

Merits:

  1. Preference share capital cannot be redeemed during the lifespan of the company. Hence, these are the sources of permanent capital.
  2. The cost of issuing preference shares is economical.
    Demerits:
  3. The dividend paid to the preference shareholders is not a deductible expense while computing the tax liability of the company.
  4. Investors willing to take risk and earn higher profit do not prefer preference shares.