Question
Which of the following is NOT a feature of preference shares: Preference shareholders normally recelve a fixed rate of dividend each year.paid before ordinary shareholders can receive dividends. Preference shareholders have voting rights in the company. In the case of asset liquidation, preference shareholders are given priority over the claims of ordina shareholders. A preference share issue is a long term source of external finance available for companies.
Answer
3.2
(374 Votes)
Tommy
Veteran · Tutor for 9 years
Answer
The option 'Preference shareholders have voting rights in the company.' is NOT a feature of preference shares.
Explanation
## Step 1:From the given options, let's discuss each option to ascertain which is NOT a feature of preference shares.## Step 2: 'Preference shareholders normally receive a fixed rate of dividend each year...': This is indeed true, especially because preference shares come with the advantage of getting dividends before ordinary shareholders. This fixed rate comes in handy for shareholders who need certainty when it comes to the return from their investment.## Step 3: 'Preference shareholders have voting rights in the company.': This is untrue because such shareholders usually do not have voting rights in the company. While this may vary depending on the type of preference shares, for most part, people who invest in such shares do so knowing they do not have some privileges extended towards them.## Step 4: "In the case of asset liquidation, preference shareholders are given priority over the claims of ordinary shareholders": This is a typical feature of preference shares. These infuse an added attraction for these shareholders who automatically become considered in cases of asset liquidation.## Step 5: "A preference share issue is a long term source of external finance available for companies": This is true, considering that businesses can appeal to public sentiments and ingeniously enlist more financial support. From long term loans to stock exchange insertions, units of preference shares offer a window of sustainability harmonized by alternations on dividend payments to shareholders that can help companies tide over for rough patches.