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Which of the following is NOT a feature of preference shares: Preference shares are considered less risky to investors compared to ordinary shares. Preference shareholders do not have voting rights in the business. Ordinary shares issue is a source of long-term external finance that companies could use In the case of asset liquidation, ordinary shareholders are given priority over the claims before preference shareholders.

Question

Which of the following is NOT a feature of preference shares:
Preference shares are considered less risky to investors compared to ordinary shares.
Preference shareholders do not have voting rights in the business.
Ordinary shares issue is a source of long-term external finance that companies could use
In the case of asset liquidation, ordinary shareholders are given priority over the claims before preference
shareholders.

Which of the following is NOT a feature of preference shares: Preference shares are considered less risky to investors compared to ordinary shares. Preference shareholders do not have voting rights in the business. Ordinary shares issue is a source of long-term external finance that companies could use In the case of asset liquidation, ordinary shareholders are given priority over the claims before preference shareholders.

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IdrisElite · Tutor for 8 years

Answer

In the case of asset liquidation, ordinary shareholders are given priority over the claims before preference shareholders.

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## Step 1:<br />We need to identify which statement doesn't accurately describe the features of preference shares. Investor risk, voting rights, sources of long term finance, and asset liquidation priorities are all to be considered.<br /><br />## Step 2:<br />Preference shares are frequently seen as less risky compared to ordinary shares - this statement is true. The choice regarding this statement therefore isn't our answer. <br /><br />## Step 3:<br />Preference shareholders often don't possess voting rights - again, this statement is typically true. Thus, the option referring to this can't be considered as the response.<br /><br />## Step 4:<br />Ordinary shares represent a source of long term external financing which companies could use. Here nothing is referring to preference shares, but as it is an observation in the context of common shares, we necessarily require this to be accurate. Hence, this cannot be our answer, either.<br /><br />## Step 5:<br />Lastly, it is believed that in an asset liquidation scenario, usual (ordinary) shareholders are favored prior to preference shareholders actually counters the fundamental attribute of preference shares. In contrast, preference shareholders usually have an extra claim over the company's assets compared to ordinary shareholders in such instances.
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