What is meant by preference shares ? Explain the merits of preference shares ?
What is meant by preference shares ? Explain the merits of preference shares ?
Preference shares are those shares that enjoy certain priorities regarding the payment of dividend at a fixed rate and return of investment.
Merits of Preference Shares are :
(i) They do not create any change in the assets of the company.
(ii) They have the preferential right to repayment of capital over equity shareholders at the time of winding up of the company.
(iii) Since the dividend payable to preference shareholders is fixed, a company is in a position to declare high rates of dividend for equity shareholders during favourable times.
(iv) They provide a steady income in the form of fixed rate at return and investment from profitable business.
(v) Preference share capital cannot be redeemed during the lifespan of the company. Hence, these are the source of permanent capital.
(vi) The cost of issuing preference shares is economical.
Preference shares are those shares that enjoy certain priorities regarding the payment of dividend at a fixed rate and return of investment.
Merits of Preference Shares are :
(i) They do not create any change in the assets of the company.
(ii) They have the preferential right to repayment of capital over equity shareholders at the time of winding up of the company.
(iii) Since the dividend payable to preference shareholders is fixed, a company is in a position to declare high rates of dividend for equity shareholders during favourable times.
(iv) They provide a steady income in the form of fixed rate at return and investment from profitable business.
(v) Preference share capital cannot be redeemed during the lifespan of the company. Hence, these are the source of permanent capital.
(vi) The cost of issuing preference shares is economical.
