Disadvantages of Preference shares

Area/Neighbourhood: Vijayawada

Disadvantages of Preference shares

The preference dividend is not tax-deductible and hence it is costlier than a debenture. With a cumulative preference share, the arrear dividend is payable when the company earns a profit, which creates a huge financial burden on the company. Redemption of preference share again creates a financial burden and erodes the capital base of the company. Preference shareholders get dividends at a constant rate and will not increase even if the company earns a huge profit, which makes this form of finance less attractive. Preference shareholders do not enjoy voting rights and hence their fate is decided by the equity shareholders.

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