In a company, the total capital is divided in to smaller parts known as equity share. These shares are issued to the investors who are known as equity shareholder of the company.
Equity Shares are used as a long-term source of finance by the companies. Equity shareholders are the owners, they participate in the decision making, and receive dividend in return of investment.
Some important features of equity shares are as under:
i) Carries voting rights, and participates in the decision making of the company.
ii) Dividend is payable but it is not fixed.
iii) Expect higher profits for higher risk in investment.
iv) Irredeemable in nature.
v) Repayment can be done at the time of closure of business.
vi) Equity shares may carry differential voting rights.
Now, we may look at some benefits of the equity shares to the investors:
i) High risk, high reward-Since payment of dividend on equity shares is uncertain but there is always a chance of high profits and dividend distribution.
ii) Participation in Management- Equity shares carries voting rights which can be exercised to take various important decisions. The equity shareholders can approve or reject a proposal for major changes in the company.
iii) Bonus and Right Shares- Sometimes the companies offers Bonus Shares and Right Shares to the shareholders. Equity shareholders are entitled to Bonus and Right shares in case any such offer is made by the company.
iv) Capital Appreciation- If the equity shares are listed, these may be sold in the secondary market to gain capital appreciation.
Summary
Equity Share is a good financial instrument for investment. It offers dividend as well as opportunity for capital appreciation.
Disclaimer-This Article or any references contained therein, are meant for educational purposes only. It shall not be construed as rendering of any advice, in any manner, whatsoever. We reserves, the right to modify, delete the content or rectify any inadvertent errors, at any time.
(Republished with amendments)
