Leads to speculation: Shares traded on the stock exchange lead to speculation, affecting the share price of the company and its total market capitalization. Therefore, a sudden dump of shares by the shareholders may have a crushing effect on the company’s value. (C. Paramasivan, n.d.)
Unlike equity shares, Preference shares do not have voting rights, restricting the ownership rights in the company. They are entitled to receive a dividend before the ordinary shareholders are paid any dividends and therefore get a preference over equity shares. (Boyte-White, n.d.)
Advantages of Preference Shares:
From the point of view of the company, there are many advantages of issuing preference shares instead of equity shares, like:
No Voting Rights:
Preference shareholders do not have any voting rights. Therefore, they do not dilute the control of the owners in the company.
Disadvantages of Preference Shares:
Dividends have to be paid:
Preferred stock differs from common stock because it has preference over common stock
in the payment of dividends. The term ‘Preference’ means that the preference shareholders must receive a dividend before ordinary shareholders get any dividends (Stephen A. Ross, n.d.).
A business may opt for leasing an asset rather than buying it, using either available cash resources or borrowed funds. Another advanced form of leasing is a “sale and leaseback agreement” in which a company enters in to an agreement to sale its asset and lease it back from the party to which it was sold (usually an insurance company or pension fund) for raising immediate cash from the sale proceeds. This is most commonly done with premises like land and building, with some rent reviews every few years.
Frees up cash from under performing assets:
A sale and leaseback is best suited for those assets that have a low performance. A huge amount of cash can be released by entering those assets into a sale and leaseback agreement.