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What are Equity Shares? Types, Features, Advantages.

Equity Shares represent the stake of ownership in a company, through which the money is directed towards the company’s capital for expanding the operations. Equity shares are also known as “Ordinary Shares”. The holder/(s) of equity shares can also be said as owners of the company.

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?

  • Equity shareholders are the true and rightful owners of the company.
  • The holders of equity shares bear the highest risk.
  • They have the right to vote in the company’s decisions.
  • They do not get a fixed dividend rate, as it depends upon the surfeit capital.


WHAT ARE THE ADVANTAGES FOR EQUITY SHAREHOLDERS?

  • Equity shares are a permanent source of capital as it does not involve any repayment liability.
  • These shares are liquid and can be easily sold in the capital market.
  • The right to control the management is also vested in the company's equity shareholders.
  • It does not give rise to the company's obligation regarding the fixed payment of dividends.
  • The benefits are twofold for equity shareholders, as dividend and as appreciation in the investment value.
  • It also increases the creditworthiness of the company among creditors and investors.

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.
 

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