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Preference Shares Benefits Explained
Summary
Issuing preference shares allows companies to raise capital without diluting control, as these shares typically lack voting rights. Sections 69G, 71, and 102 of the Companies Act 2016 Malaysia support this by permitting preference shares and detailing their rights. For shareholders, preference shares offer stable income through fixed dividends and priority in liquidation. The case of Andrews v Gas Meter Co (1897) highlights the flexibility in structuring share capital, reinforcing the benefits of preference shares for both companies and investors.Full Conversation
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Advantages of Issuing Preference Shares
From the Company's Perspective:
*. Capital Raising without Dilution of Control:
- Issuing preference shares allows a company to raise capital without diluting the control of existing shareholders since preference shares typically do not carry voting rights.
- Section 69G of the Companies Act * permits companies to issue preference shares.
*. Attractive to Investors:
- Preference shares can be attractive to investors due to their fixed dividend rate and priority over ordinary shares in dividend payments and asset distribution upon liquidation.
- Section * outlines the rights attached to preference shares, which can be customized to appeal to investors.
From the Shareholders' Perspective:
*. Stable Income:
- Preference shareholders receive dividends at a fixed rate, providing a stable income stream.
- Section * ensures that dividends on preference shares must be paid before any dividends are paid on ordinary shares.
*. Priority in Liquidation:
- Preference shareholders have a higher claim on the company's assets than ordinary shareholders if the company is liquidated.
- Section *(*)(b) specifies that preference shareholders have priority over ordinary shareholders in repayment during liquidation.
From the Company's Perspective:
*. Capital Raising without Dilution of Control:
- Issuing preference shares allows a company to raise capital without diluting the control of existing shareholders since preference shares typically do not carry voting rights.
- Section 69G of the Companies Act * permits companies to issue preference shares.
*. Attractive to Investors:
- Preference shares can be attractive to investors due to their fixed dividend rate and priority over ordinary shares in dividend payments and asset distribution upon liquidation.
- Section * outlines the rights attached to preference shares, which can be customized to appeal to investors.
From the Shareholders' Perspective:
*. Stable Income:
- Preference shareholders receive dividends at a fixed rate, providing a stable income stream.
- Section * ensures that dividends on preference shares must be paid before any dividends are paid on ordinary shares.
*. Priority in Liquidation:
- Preference shareholders have a higher claim on the company's assets than ordinary shareholders if the company is liquidated.
- Section *(*)(b) specifies that preference shareholders have priority over ordinary shareholders in repayment during liquidation.
Relevant Provisions of the Companies Act *:
- Section 69G: Provides the authority for issuing different classes of shares, including preference shares.
- Section *: Details the rights and restrictions attached to preference shares.
- Section *: Ensures the priority of dividend payments to preference shareholders over ordinary shareholders.
- Section 69G: Provides the authority for issuing different classes of shares, including preference shares.
- Section *: Details the rights and restrictions attached to preference shares.
- Section *: Ensures the priority of dividend payments to preference shareholders over ordinary shareholders.
Application:
In the context of Andrews v Gas Meter Co (*), the ruling supports the flexibility a company has in structuring its share capital and highlights the benefits of issuing preference shares. By issuing preference shares, companies can attract investors with the promise of fixed returns and priority in asset distribution, thereby raising necessary capital without losing control.
In the context of Andrews v Gas Meter Co (*), the ruling supports the flexibility a company has in structuring its share capital and highlights the benefits of issuing preference shares. By issuing preference shares, companies can attract investors with the promise of fixed returns and priority in asset distribution, thereby raising necessary capital without losing control.
Conclusion:
Issuing preference shares can be beneficial for companies seeking to raise capital without diluting ownership control and for investors seeking stable returns and priority in liquidation. The provisions in the Companies Act * provide a clear legal framework supporting the issuance and benefits of preference shares.
If you have any specific questions or need further clarification, feel free to ask!
Issuing preference shares can be beneficial for companies seeking to raise capital without diluting ownership control and for investors seeking stable returns and priority in liquidation. The provisions in the Companies Act * provide a clear legal framework supporting the issuance and benefits of preference shares.
If you have any specific questions or need further clarification, feel free to ask!
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