The companies issue shares to the general public with the primary motive of Capital generation. And the investors can acquire a chance to gain a share of its profits. A large capital base can also support a company in enhancing its creditworthiness in the market. This article aims at providing information in regards to Equity Shares.
WHAT IS EQUITY SHARE?
The company requires funds for its growth and expansion. This can be done by offering shares to the public. On one side, the public invests the funds in the company. On the flip side, the investors get a percentage of ownership in such a company and become entitled to receive profits in dividends.
But it is important to note that the management decides whether the profits are to be reinvested for business growth or to pay out a part of the profits to shareholders as dividends.
WHAT ARE THE TYPES OF EQUITY SHARES?
EQUITY SHARE TYPES
EXPLANATION
Authorized
It is the maximum amount of capital that can be issued by a company. Companies can increase the Authorised share capital by following the provisions of the Companies Act, 2013.
Issued
The shares offered by the company to its investors.
Subscribed
The shares agreed upon and accepted by the investors.
Paid-up capital
The sum of money paid by investors for the shares accepted by them.
Right shares
These shares are issued to existing shareholders.
Bonus shares
These are additional shares issued to investors without any additional cost.
WHAT ARE THE FEATURES OF EQUITY SHARES?
WHAT ARE THE ADVANTAGES FOR EQUITY SHAREHOLDERS?
Like two sides of a coin, the holders of Equity Share Capital also face certain disadvantages along with the advantages mentioned above. The disadvantages include that such shareholders bear the highest degree of risk of the company, the management may face hurdles while exercising control over affairs of the company. Also, the market price of equity shares fluctuates widely, which can erode the investment's value.