: How does a company raise capital using Preference shares? What I understood so far from preference shares is, the promotors sell a part of their shares at the current market price to some investment firm as preferential shares.

Vote Up Vote Down   0 Reactions

Login to give Reaction!

Preferred stock from Wikipedia:

Preferred shares are more common in private or pre-public companies,
where it is useful to distinguish between the control of and the
economic interest in the company. Government regulations and the rules
of stock exchanges may either encourage or discourage the issuance of
publicly traded preferred shares. In many countries, banks are
encouraged to issue preferred stock as a source of Tier 1 capital. On
the other hand, the Tel Aviv Stock Exchange prohibits listed companies
from having more than one class of capital stock.

The company is selling the shares to raise money for operations generally. Imagine if a company wants to raise ,000,000 by offering 10,000 shares at 0/share in a new preferred share class. This allows the company to get the funds that some investors which may be private firms or the public are buying in the offering.