It is preferable for shareholders to own preference shares instead of ordinary shares.

Expert Solution

Following are the reasons as to why it is preferable for shareholders to own preference shares instead of ordinary shares:-

Preference share holders will have preferential right for receipt of dividend, i.e, dividend will be distributed to preference shareholders before ordinary shareholders.
Preference share have fixed rate of dividend, whereas ordinary shares do not have fixed rate of dividend
In the year of loss , cumulative preference shareholder's dividend will be accumulated, i.e, dividend which should have been distributed in the year of loss will be distributed in the future year when profit is earned along with the dividend of that year.
They are given priority for claim of assets at the time of insolvency or liquidation (when compared to ordinary shareholders).
Less risky when compared ordinary shares.

But there are certain disadvantages to preference shareholders. No voting right is given to preference shareholders. They are not given bonus shares. When entity earns more profit , it is not beneficial to preference shareholders , as they have fixed rate of dividend.

ekkarill92 answered 6 months ago

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