What is meant by preferential allotment of shares and why it is done ?

Posted by epicresearchindore on February 15th, 2018

Preferential allotment is a process in which shares are alloted to a specific group of people or companies which are interested in it on preferential basis. Company which allots shares states that whenever it will pay dividend, preference shares holders will be paid first.This can be done by any company which is listed on exchange and all rules and regulations stated by SEBI are to be followed to do so. Traders often refer experts advise on mcx tips and more as they looking for consistent earnings from market. A company may decide to raise funds from public in order to meet different financial requirements. If they will go for issuing shares to public on large scale it will consume a lot of time and is complicated as well. Among all methods of raising funds this one is most convenient as less paper work is required.

Why company go for preferential allotment of shares

When a company wants to raise funds it can do so by issuing new shares to public or bulk allotment of shares. The main reason behind preferential allotment of shares is to facilitates shareholders who are unable to buy large chunk of shares from market as it is too costly or unfeasible for them. But these shareholders do not get any voting rights and they are paid only when company earns profit.

Benefits of preference shareholder

1) No brokerage costs is incurred and preferential shareholders get paid first when company earns profit and after them other share holders are paid.

2) If any company has not paid dividend in present year then shareholders has right to claim this dividend in the next years.

3) Capital of preference shareholders is always safe. If in case company fails or gets bankrupt then preference shareholders will be paid first among all.

Along with these advantages it has some drawbacks as well. No voting rights are issued here and it is risky than bonds. Also when company gets bankrupts they are paid after NCD (Non Convertible Debentures).

Some companies start performing well after preference allotment of shares. The reason behind this may be that they have used raised funds in an efficient manner. And if some well informed veteran investors have invested in them then definitely it will drive the growth of business. As per needs a trader may decide whether he wants to go for preference shares or common shares. Also they can take guidance from some financial advisory services providers to take optimum decisions while trading in stock market. They assists with useful experts recommendations after carefully understanding present market conditions. Though extra cost is involved to get such experts recommendations but it helps traders in improving their trade results.




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Joined: June 3rd, 2016
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