Investors who prefer steady income may not prefer equity shares. The cost of equity shares is higher than the cost of raising funds through other sources. The issue of additional equity shares dilutes the voting power and earnings of existing equity shareholders.
Benefits of equity share investment are dividend entitlement, capital gains, limited liability, control, claim over income and assets, right shares, bonus shares, liquidity etc. Disadvantages are dividend uncertainty, high risk, fluctuation in market price, limited control, residual claim etc.
Equity Share Meaning
An equity share, normally known as ordinary share is a part ownership where each member is a fractional owner and initiates the maximum entrepreneurial liability related to a trading concern. These types of shareholders in any organization possess the right to vote.
The limitations of preference shares are as follows :
- The rate of dividend payable on preference share is higher than the rate of interest on debentures.
- The claim of equity shareholders over assets of the company is affected by the issue of preference share capital.
What are Equity Shares? Equity shares are long-term financing sources for any company. These shares are issued to the general public and are non-redeemable in nature. Investors in such shares hold the right to vote, share profits and claim assets of a company.
(i) Equity shares being irredeemable; make the capital structure of the company rigid. (ii) Equity shareholders interfere in company management. … (iii) Equity shares do not provide any tax advantage to the company; as equity dividend is payable only after payment of tax.
Types of Equity Shares
- Authorized Share Capital. It is the maximum amount of capital which a company can issue. …
- Issued Share Capital. It is that part of authorized capital which the company offers to the investors.
- Subscribed Share Capital. …
- Paid Up Capital. …
- Rights Shares. …
- Bonus Shares. …
- Sweat Equity Share. …
- Par or Face Value.
Equity Shares. Preference Shares. Meaning. Equity shares are the ordinary shares of the company representing the part ownership of the shareholder in the company. Preference shares are the shares that carry preferential rights on the matters of payment of dividend and repayment of capital.
Share capital is different from shareholders’ equity because it does not include retained earnings: It is made up only of the equity owners have put into the company by purchasing shares.
The characteristics of equity shares are as follows:
- Residual Claim on Income : …
- Residual Claim on Assets : …
- Limited Liability : …
- Pre-Emptive Rights : …
- Maturity of the Shares : …
- Right to Control : …
- Rights against Ultra Vires acts of the Company : …
- Right to have knowledge of Corporate Affairs :
What is Term equity?
Equity represents the value that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debts were paid off. … Equity represents the shareholders’ stake in the company, identified on a company’s balance sheet.
What are Equity Shares? Equity shares are long-term financing sources for any company. These shares are issued to the general public and are non-redeemable in nature. Investors in such shares hold the right to vote, share profits and claim assets of a company.
Right Issue of Equity Shares by a Company
- Right issue means offer of shares to the equity shareholders of the Company, as on the date of offer, in proportion to the capital paid up on their shares. …
- Shares shall be offered on rights basis by sending a letter of offer fulfilling the prescribed conditions.