EQUITY SHARES and a Bit More
Equity Shares are considered as the main source of finance of a firm, precisely, issued to the general public. Equity shareholders do not enjoy any preferential rights regardless of dividend and repayment of capital. Although, they are entitled to residual of the company, but they do enjoy the right to control the business affairs and collectively they are the owners of the company.
CHARACTERISTICS OF EQUITY SHARES
- Equity shares are permanent in nature.
- Equity shares are transferable in nature, which states that the ownership of shares can be transferred with/without consideration to other people.
- Equity shareholders are the owners of the company; also bearing the highest risk.
- Shareholders do not get a fixed dividend rate.
- Equity share holders have full right to take control of the company affairs.
- The liabilities of a shareholder are limited to the extent of their investment.
TYPES OF EQUITY SHARES
Let’s discuss here:
- Sweat Equity Share: These kinds of shares are owned by the employees or the directors of the company. They are issued at a certain discount for consideration rather than cash for their services towards the organization.
- Bonus Equity Share: Generally, bonus means getting something extra as compared to normal. In the same way, bonus shares are those which are issued free of cost, by an organization to their existing shareholders. Instead of a payable dividend, they provide bonus shares.
- Right Equity Share: These shares are issued to their existing shareholders.
ADVANTAGES OF EQUITY SHARES
They are shared right here:
- They are the foundation for the capital of an organization. It provides a cushion for investors and stands last in the list of claims.
- They are preferred by investors who are willing to take higher risks for higher returns on their investment.
- They provide confidence to prospective loan providers and creditworthiness to the organization.
- The payment of dividend to the holders of equity shares are not compulsory, therefore, no such burden on the organization.
- Funds of an organization are raised by equity shares without putting any charge on its assets.
- To look from a shareholder’s point of view, one of the advantages of equity shares – they are liquid in nature and can be sold in the capital market with ease.
On That Note: The price of equity shares can fluctuate, therefore, buying these come with a certain risk, but over the long-term they end up generating good returns.
*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.