Question

Explain the three disadvantages of preference shares from the investors’ point of view. 

Answer 1

1. No voting right: Generally preference shareholders do not have any voting rights. Hence, they cannot have control over the management of the company. 
2. Fixed dividend only: Preference shares can get only a fixed rate of dividend. They may not enjoy more profits of the company.
3. 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 a disadvantage on the tax deduction point of view.