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Disadvantages of Preference Shares

Disadvantages of Preference Shares:

1. Expensive sources of finance: Preference shares have high expensive source of finance while compared to equity shares.

2. No voting right: Generally preference sharesholders do not have any voting rights. Hence they cannot have the control over the management of the company.

Disadvantages of Preference Shares
[Post Image Courtesy of Stuart Miles at FreeDigitalPhotos.net]

3. Fixed dividend only: Preference shares can get only fixed rate of dividend. They may not enjoy more profits of the company.

4. Permanent burden: Cumulative preference shares become a permanent burden so far as the payment of dividend is concerned. Because the company must pay the dividend for the unprofitable periods also.

5. Taxation: In the taxation point of view, preference shares dividend is not a deductible expense while calculating tax. But, interest is a deductible expense. Hence, it has disadvantage on the tax deduction point of view.

Sourced From: Financial Management By C. Paramasivan And T. Subramanian

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.

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