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    Equity Shares: Features, Advantages and Disadvantages of Equity Shares

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    Atul Gupta
    Equity shares are the real ownership in a company. Equity shareholders have voting rights and control over company decisions. They receive dividends only after preference shareholders, and dividends depend on company profits in a given year, so equity shares carry more risk than preference shares. Equity shares do not have a fixed dividend rate or redemption period, but provide permanent capital and potential for higher returns through dividends and share price appreciation in successful companies.

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    Equity Shares: Features, Advantages and Disadvantages of Equity Shares

    Uploaded by

    Atul Gupta
    841 views3 pages
    Equity shares are the real ownership in a company. Equity shareholders have voting rights and control over company decisions. They receive dividends only after preference shareholders, and dividends depend on company profits in a given year, so equity shares carry more risk than preference shares. Equity shares do not have a fixed dividend rate or redemption period, but provide permanent capital and potential for higher returns through dividends and share price appreciation in successful companies.

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    Equity Shares

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    Equity shares are the real ownership in a company. Equity shareholders have voting rights and control over company decisions. They receive dividends only after preference shareholders, and dividends depend on company profits in a given year, so equity shares carry more risk than preference shares. Equity shares do not have a fixed dividend rate or redemption period, but provide permanent capital and potential for higher returns through dividends and share price appreciation in successful companies.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    841 views3 pages

    Equity Shares: Features, Advantages and Disadvantages of Equity Shares

    Uploaded by

    Atul Gupta
    Equity shares are the real ownership in a company. Equity shareholders have voting rights and control over company decisions. They receive dividends only after preference shareholders, and dividends depend on company profits in a given year, so equity shares carry more risk than preference shares. Equity shares do not have a fixed dividend rate or redemption period, but provide permanent capital and potential for higher returns through dividends and share price appreciation in successful companies.

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    © All Rights Reserved
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    Equity Shares: Features, Advantages

    and Disadvantages of Equity Shares

    Equity shares were earlier known as ordinary shares.

    The holders of these shares are the real owners of the company.

    They have a voting right in the meetings of holders of the company.

    They have a control over the working of the company.

    Equity shareholders are paid dividend after paying it to the preference


    shareholders.

    The rate of dividend on these shares depends upon the profits of the company.

    They may be paid a higher rate of dividend or they may not get anything.

    These shareholders take more risk as compared to preference shareholders.

    Equity capital is paid after meeting all other claims including that of preference
    shareholders. They take risk both regarding dividend and return of capital. Equity
    share capital cannot be redeemed during the life time of the company.

    Features of Equity Shares:

    Equity shares have the following features:


    (i) Equity share capital remains permanently with the company. It is returned only
    when the company is wound up.

    (ii) Equity shareholders have voting rights and elect the management of the
    company.
    (iii) The rate of dividend on equity capital depends upon the availability of surplus
    funds. There is no fixed rate of dividend on equity capital.

    Advantages of Equity Shares:

    1. Equity shares do not create any obligation to pay a fixed rate of dividend.

    2. Equity shares can be issued without creating any charge over the assets of the
    company.

    3. It is a permanent source of capital and the company has to repay it except under
    liquidation.

    4. Equity shareholders are the real owners of the company who have the voting
    rights.

    5. In case of profits, equity shareholders are the real gainers by way of increased
    dividends and appreciation in the value of shares.

    Disadvantages of Equity Shares:


    1. If only equity shares are issued, the company cannot take the advantage of trading
    on equity.

    2. As equity capital cannot be redeemed, there is a danger of over capitalisation.

    3. Equity shareholders can put obstacles for management by manipulation and


    organising themselves.

    4. During prosperous periods higher dividends have to be paid leading to increase in


    the value of shares in the market and it leads to speculation.
    5. Investors who desire to invest in safe securities with a fixed income have no
    attraction for such shares.

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