Preference Capital has the following Advantages:

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1)   There is no legal obligation to pay preference dividend. A company does not face bankruptcy or legal action if it skips preference dividend.

 

2)   There is no redemption liability in the case of perpetual preference shares. Even in the case of redeemable preference shares, financial distress may not be much because:

 

(i)          Periodic sinking fund payments are not required

(ii)         Redemption can be delayed without significant penalties

 

3)   Preference capital is generally regarded as part of net worth. Hence, it enhances the creditworthiness of the firm.

 

4)   Preference shares do not, under normal circumstances, carry voting right. Hence, there is no dilution of control.

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