Question
ts 3 pts Question 6 Which of the following is NOT a feature of preference shares: Preference shares are considered less risky to investors compared to ordinary shares. In the case of asset liguidation, ordinary shareholders are given priority over the claims before preference shareholders. Ordinary shares issue is a source of long-term external finance that companies could use. Preference shareholders do not have voting rights in the business.
Answer
4.2
(315 Votes)
Peri
Professional · Tutor for 6 years
Answer
In the case of asset liquidation, ordinary shareholders are given priority over the claims before preference shareholders.
Explanation
## Step1: Understanding the questionWe are asked to identify which of the listed statements is NOT a feature of preference shares. ## Step2: Analyzing each optionWe need to consider each option in turn and ascertain whether the clause is correct about preference shares.- In the first point, the statement claims that preference shares are less risky to investors compared to ordinary shares. This statement is indeed true because preference shareholders have a prior claim on dividend payouts and assets if the company is liquidated.- The second statement asserts that ordinary shareholders are given preference during the liquidation of a company's assets. This isn't accurate; preference shareholders enjoy a higher claim on assets during liquidation before ordinary shareholders.- The third statement about ordinary shares being an essential source of external finance is true. Nonetheless, it does not directly concern preference shares specifically and could be misleading.- The fourth statement says that preference shareholders do not have voting rights in the business. This is true in most instances: preference shareholders generally do not have voting rights, although some preference shares come with this provision.## Step3: Choosing the correct optionBy observing closely, the second statement is the one that is not correct about preference shares.