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How the company can benefit from issuing preference shares

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Reference no: EM133102003

Question - Due to the need for business expansion, the management is also considering on the issuance of more shares to induce the capital of the company. Among the options is issuing additional 200,000 ordinary shares at a price of RM2.75 per share. Another option is issuing 9% preference shares, whether a non-cumulative or callable preference share. The CEO in the earlier discussion with two of the directors showed more interest in issuing ordinary shares rather than preference. However, the two directors had the opposing view due to certain reasons.

On 1 January 2022, the company issued 100,000 ordinary shares at a price of RM2.75 per share, for the exchange of herbal oil extraction machine worth RM290,000. Despite the arguments on the types of shares to be issued, the company also on the same date, issued 300,000 ordinary shares for RM2.80 per share. The legal fees incurred in relation to the issuance of the share were RM3,000.

The decisions on issuing ordinary shares were passed by a simple majority among board of directors. The two directors involved in the initial discussions with the CEO are still not satisfied with the decision. They plan to have another meeting with the CEO on the matters.

Required - Discuss and help the two directors on how the company can benefit from issuing preference shares compared to ordinary.

Reference no: EM133102003

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