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Features of Equity Shares

Equity shares represent permanent capital for a company. There is no guarantee of return of capital if the company winds up, and equity shareholders have last claim to assets. Dividends are not guaranteed and depend on company earnings, fluctuating year to year. Equity shareholders can vote at shareholder meetings and enjoy potential for capital appreciation if the company performs well, but also the risk of depreciation if it performs poorly.

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3K views

Features of Equity Shares

Equity shares represent permanent capital for a company. There is no guarantee of return of capital if the company winds up, and equity shareholders have last claim to assets. Dividends are not guaranteed and depend on company earnings, fluctuating year to year. Equity shareholders can vote at shareholder meetings and enjoy potential for capital appreciation if the company performs well, but also the risk of depreciation if it performs poorly.

Uploaded by

Ankita Modi
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Features of equity shares:

1) Permanent Capital: The equity share capital represents


permanent capital of the company. There is no
obligation on the part of the company to pay the capital
during the life time of the company. The equity shares
are irredeemable. The shareholders may get their funds
back on the winding up of the company.

2) Risk to capital: there is no guarantee of return of


capital, in the case of winding up of the company.
Equity shareholders have a residual claim {last claim}
on the winding up of the company. There are chances,
the equity shareholders may not get back their initial
capital invested in the company. Therefore, the equity
capital is called risk capital or venture capital.

3) Fluctuating dividend: There is no guarantee of


minimum dividend. The rate of dividend depends upon
the earnings of the company. If the company makes
good profit, then the equity shareholders will get good
dividend. If the company makes low profit or loss, then
the equity shareholders may not get any dividend.

4) Voting rights: the equity shareholders enjoy normal


voting rights. They can vote on all resolutions passed at
the shareholders meetings. They can exercise their
rights either in person or by proxy. The preference
shareholders do not have normal voting rights.

5) Capital Appreciation: Equity shares are subject to


capital appreciation or depreciation. Share Capital
Appreciation takes place when the market value of the
shares increases on the stock exchange due to
excellent performance of the company. However, share
capital depreciation may take place when the market
value of the shares declines on the stock exchange due
to poor performance of the company.

6) Benefit of Bonus Shares: Issue of Bonus shares is also


called as Capitalization of Reserves. Companies with
good amount of free reserves issue bonus shares.
Bonus shares are issued to existing equity shareholders
free of cost. The bonus shares are issued in certain
proposition to the shares held prior to the issue of
bonus shares. The bonus shares can be issued only out
of free reserves built out of genuine profits or share
premium collected in cash only.

7) Benefit of right issue: when an existing company raises


further capital by way of shares and/or debentures, then
first priority I s given to existing shareholder. If the
existing shareholder does not accept such rights issue,
then the shares are issued to public. The right issue
shares are issued by the company either at face value
or for a premium. However the market value of such
shares can be considerably high.

8) Controlling powers: The equity shareholders enjoy


control over management of the company. They control
by electing BOD. However the control over
management is manipulated by a few shareholders who
hold substantial number of shares. This is because the
voting rights are in proportion to the number of equity
shares held by each shareholder.

9) No charge over asset: The equity capital does not


create any charge over assets of the firm.

10) Transferability of shares; the shares of public


limited company are freely transferable. If the
shareholder wants to sell or transfers the shares, he
can easily do so. However in preferential allotment to
employee, there is a lock in period.

11) Face value: equity shares can be issued of


different face value, which can be Re. 10 to even
Rs.100. normally face value is Rs 10 of most Public
limited company.

12) Increases shareholders wealth: equity shares


increases shareholders wealth. This is due to regular
dividend and issue of bonus shares. During stock
market boom, the share price of reputed companies
increases considerably.

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