“It is preferable for shareholders to own preference shares instead of ordinary shares.” REQUIRED: Critically discuss,...

“It is preferable for shareholders to own preference shares instead of ordinary shares.” REQUIRED: Critically discuss, stating whether you agree or disagree with the above statement. Refer to relevant statutory law in your answer as appropriate.

Expert Solution

It is preferable for shareholder to own preference shares instead of ordinary shares. We agree to this statement provided the preference shareholders does not want to have the voting rights and decision participating liberty. Also this is preferable when shareholder want to have the lesser risk than ordinary shareholders.

Following are the advantage of being preference shareholder :

Preferential treatment over ordinary shareholders in case company faces bankruptcy or liquidation. They receive higher claim on asset as compared to ordinary shareholders.
Some type of preference shares are convertible in nature wherein preference shareholders are given with option to convert the preference shares in ordinary shares at later point when company common share prices are rising.
Receive fixed dividend whereas the dividend can fluctuate in case of ordinary shareholders in case of profits. Also,some preference shares which are cumulative in nature, gets the cumulative unpaid dividend before any payments of dividend to ordinary shareholders
They are at lesser risk as compared to ordinary shareholders.

Thanks.

ekkarill92 answered 1 year ago

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

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