Explain any two merits and two demerits of raising funds through preference shares.
- Preference share capital cannot be redeemed during the lifespan of the company. Hence, these are the sources of permanent capital.
- The cost of issuing preference shares is economical.
- The dividend paid to the preference shareholders is not a deductible expense while computing the tax liability of the company.
- Investors willing to take risk and earn higher profit do not prefer preference shares.