Advantages and disadvantages of raising funds by issue of preference shares are:
(i) No dilution in EPS on enlarged capital base - If equity is issued it reduces EPS, thus affecting the market perception about the company.
(ii) There is leveraging advantage as it bears a fixed charge. Non-payment of preference dividends does not force company into liquidity.
(iii) There is no risk of takeover as the preference shareholders do not have voting rights except in case where dividend arrears exist.
(iv) The preference dividends are fixed and pre-decided. Hence preference shareholders do not participate in surplus profits as the ordinary shareholders.
(v) Preference capital can be redeemed after a specified period.
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