Meaning:

Equity shares are those shares which are ordinary in the course of company's
business. They are also called as ordinary shares. These share holders do not enjoy preference
regarding payment of dividend and repayment of capital.Equity shareholders are paid dividend
out of the profits made by a company. Higher the profits, higher will be the dividend and lower
the profits, lower will be the dividend
Shares having a claim to participate in the whole range of annual profits
remaining to a company after it has satisfied all charges and met any fixed preferential
dividends, and having a right to participate in surplus assets in a winding-up.
Also referred to as ordinary shares or (in the USA) common stock. Shares which
represent the right to participate in the residual assets of a business and which usually
have voting rights. They will usually receive a dividend, the level of which depends on
how successful the company is. ...
Equity share are also know as ordinary shares. Every
company has to issue equity shares. Equity capital is also
known as ‘OWENED CAPITAL or ‘VENTURE CAPITAL.

definition
Indian companies Act, 1956 defines equity shares as
“those shares which are not preference shares”
The definition indicates that:

 The equity shares do not have preference for dividend.

 The equity shares do not have preference for

repayment of capital at the time of winding-up of the
company.

Difference between equity shares and preference shares

Preference Shares have 2 preferences first payment of dividend in every year in which
dividend is proposed & first share capital of preference shares will be payab;e @ winding
up or liquidation of the company,where as equity share holders dividend after preference
share holders & even share capital capital is also paid after paying to preference share
holders.

2)preference share holders are not owners of the company and do not enjoy any voting
right. Where as Equity Shares has voting right & they are the real owners of company.
3)Preference Shares have a finite tenure and carry a fixed rate of dividend where as
dividend to equity shares is payable rest of the dividend payable after preference share
holders.

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.

Advantages of equity shares:

Advantages of company: The advantages of issuing equity shares may be
summarized as below:

• Long-tern and Permanent Capital: It is a good source of long-term finance. A

company is not required to pay-back the equity capital during its life-time and so,
it is a permanent sources of capital.
• No Fixed Burden: Unlike preference shares, equity shares suppose no fixed
burden on the company's resources, because the dividend on these shares are
subject to availability of profits and the intention of the board of directors. They
may not get the dividend even when company has profits. Thus they provide a
cushion of safety against unfavorable development
 • Credit worthiness: Issuance of equity share capital creates no change on the
assets of the company. A company can raise further finance on the security of its
fixed assets.
• Risk Capital: Equity capital is said to be the risk capital. A company can trade on
equity in bad periods on the risk of equity capital.
• Dividend Policy: A company may follow an elastic and rational dividend policy
and may create huge reserves for its developmental programmes.

Advantages to Investors: Investors or equity shareholders may enjoy the

following advantages:

• More Income: Equity shareholders are the residual claimant of the profits after
meeting all the fixed commitments. The company may add to the profits by
trading on equity. Thusequity capital may get dividend at high in boom period.
• Right to Participate in the Control and Management: Equity shareholders
have voting rights and elect competent persons as directors to control and manage
the affairs of the company.
• Capital profits: The market value of equity shares fluctuates directly with the
profits of the company and their real value based on the net worth of the assets of
the company. an appreciation in the net worth of the company's assets will
increase the market value of equity shares. It brings capital appreciation in their
investments.
• An Attraction of Persons having Limited Income: Equity shares are mostly of
lower denomination and persons of limited recourses can purchase these shares.
• Other Advantages: It appeals most to the speculators. Their prices in security
market are more fluctuating.

Disadvantages of equity shares:

Disadvantages to company: Equity shares have the following disadvantages to
the company:

• Dilution in control: Each sale of equity shares dilutes the voting power of the
existing equity shareholders and extends the voting or controlling power to the
new shareholders. Equity shares are transferable and may bring about
centralization of power in few hands. Certain groups of equity shareholders may
manipulate control and management of company by controlling the majority
holdings which may be detrimental to the interest of the company.
• Trading on equity not possible: If equity shares alone are issued, the company
cannot trade on equity.
 • Over-capitalization: Excessive issue of equity shares may result in over-
capitalization. Dividend per share is low in that condition which adversely affects
the psychology of the investors. It is difficult to cure.
• No flexibility in capital structure: Equity shares cannot be paid back during the
lifetime of the company. This characteristic creates inflexibility in capital
structure of the company.
• High cost: It costs more to finance with equity shares than with other securities as
the selling costs and underwriting commission are paid at a higher rate on the
issue of these shares.
• Speculation: Equity shares of good companies are subject to hectic speculation in
the stock market. Their prices fluctuate frequently which are not in the interest of
the company.

Disadvantages to investors: Equity shares have the following disadvantages to

the investors:

• Uncertain and Irregular Income: The dividend on equity shares is subject to

availability of profits and intention of the Board of Directors and hence the
income is quite irregular and uncertain. They may get no dividend even three are
sufficient profits.
• Capital loss During Depression Period: During recession or depression periods,
the profits of the company come down and consequently the rate of dividend also
comes down. Due to low rate of dividend and certain other factors the market
value of equity shares goes down resulting in a capital loss to the investors.
• Loss on Liquidation: In case, the company goes into liquidation, equity
shareholders are the worst suffers. They are paid in the last only if any surplus is
available after every other claim including the claim of preference shareholders is
settled. It is evident from the advantages and disadvantages of equity share capital
discussed above that the issue of equity share capital is a must for a company, yet
it should not solely depend on it. In order to make its capital structure flexible, it
should raise funds from other sources also.

Equity in abroad

Common stock
Securities representing equity ownership in a corporation, providing voting rights, and
entitling the holder to a share of the company's success through dividends and/or capital
appreciation. In the event of liquidation, common stockholders have rights to a
company's assets only after bondholders, other debt holders, and preferred stockholders
have been satisfied. Typically, common stockholders receive one vote per share to elect
the company's board of directors (although the number of votes is not always directly
proportional to the number of shares owned). The board of directors is the group of
individuals that represents the owners of the corporation and oversees major decisions for
the company. Common shareholders also receive voting rights regarding other company
matters such as stock splits and company objectives. In addition to voting rights, common
shareholders sometimes enjoy what are called "preemptive rights". Preemptive rights
allow common shareholders to maintain their proportional ownership in the company in
the event that the company issues another offering of stock. This means that common
shareholders with preemptive rights have the right but not the obligation to purchase as
many new shares of the stock as it would take to maintain their proportional ownership in
the company. also called junior equity.