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Equity Shares – Features, Advantages and Disadvantages

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Equity Shares

Equity Shares

Equity Shares are called common stock, which implies, aside from preferred stock. Equity shareholders are the real owners of the company. they need management over the management of the corporate. Equity shareholders are eligible to get a dividend if the company earns a profit. Equity share capital can not be ransomed throughout the lifespan of the corporate. The liability of the equity shareholders is the value of the unpaid value of shares.

Features of Equity Shares

Equity shares encompass the subsequent necessary features:

1. Maturity of the shares:

Equity shares have a permanent nature of capital, which has no maturity period. It can not be ransomed throughout the lifespan of the corporate.

2. Residual claim on income:

Equity shareholders have the right to get income left after paying a fixed rate of dividends to preference shareholders. The earnings or the income available to the shareholders is equal to the profit after tax minus preference dividend.

3. Residual claims on assets:

If the corporate tense, the normal or equity shareholders have the proper to induce the claims on assets. These rights are solely obtainable to the equity shareholders.

4. Right to control:

Equity shareholders are the $64000 house owners of the corporate. Hence, they have the power to control the management of the company and they have the power to take any decision regarding the business operation.

5. Voting rights:

Equity shareholders have rights within the meeting of the corporate with the assistance of ballot right power; they’ll amendment or take away any call of the business organization. Equity shareholders only have voting rights in the company meeting and also they can nominate a proxy to participate and vote in the meeting instead of the shareholder.

6. Pre-emptive right:

Equity investor pre-emptive rights. The pre-emptive right is that the right of the prevailing shareholders. it’s echt by the corporate within the initial chance to buy extra equity shares in proportion to their current holding capability.

7. Limited liability:

Equity shareholders are having solely financial obligation to the worth of shares they need to be purchased. If the shareholders’ are having absolutely paid-up shares, they need no liability. For example: If the shareholder purchased 100 shares with the face value of Rs. 10 each. He paid only Rs. 900. His liability is only Rs. 100.

Total number of shares          100
Face worth of shares Rs.         10
The total value of shares         100 × 10 = 1,000
Paid-up worth of shares           900
Unpaid value/liability              100
The liability of the shareholders is the only the unpaid value of the share (that is Rs. 100).

Advantages of Equity Shares

Equity shares ar the foremost common and universally used shares to mobilize finance for the corporate. It consists of the following advantages.

1. Permanent sources of finance:

Equity share capital is belonging to the long-term permanent nature of sources of finance, hence, it can be used for long-term or fixed capital requirements of the business concern.

2. Voting rights:

Equity shareholders are the real owners of the company who have voting rights. This type of advantage is available only to the equity shareholders.

3.  No fixed dividend:

Equity shares don’t produce any obligation to pay a hard and fast rate of dividend. If the company earns a profit, equity shareholders are eligible for profit, they are eligible to get dividend otherwise, and they cannot claim any dividend from the company.

4. Less cost of capital:

The cost of capital is the major factor, which affects the value of the company. If the corporate needs to extend the worth of the corporate, they need to use a lot of share capital as a result of it consists of less value of capital (Ke) whereas compared to other sources of finance.

5. Retained earnings:

When the company has more share capital, it will be suitable for retained earnings which are the fewer cost sources of finance while compared to other sources of finance.

Disadvantages of Equity Shares

1. Irredeemable:

Equity shares can not be ransomed throughout the lifespan of the business organization. It is the most dangerous thing of overcapitalization.

2. Obstacles in management:

Equity shareholders will place obstacles in management by manipulation and organizing themselves. Because they have the power to contrast any decision which is against the wealth of the shareholders.

3. Leads to speculation:

Equity shares dealings in the share market lead to secularism during prosperous periods.

4. Limited income to an investor:

Investors who desire to invest in safe securities with a fixed income have no attraction for equity shares.

5. No trading on equity:

When the company raises capital only with the help of equity, the company cannot take advantage of trading on equity.

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