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What are the advantages of equity shares to following parties?
i.) Company: The Company does not accept any obligation while issuing equity shares. The funds raised by equity shares are available to the company on unsecured and permanent basis. Company is required to repay the amount only in the event of company’s winding up and not before that. The return on equity shares is paid in the form of dividend, which has no fixed rate i.e. it depends on the profit earnings of the company. Thus, the company is not obliged to pay dividend on equity shares. Equity share capital strengthens the credit worthiness and borrowing or debt capacity of the company. This is a free source of capital for the company.
ii.) Investors: Investors in the equity shares are the owners of the company. In equity shares, there is always a possibility of getting higher returns. The investors gain in two forms: Firstly, regular dividend in the form of cash or by way of bonus shares. Secondly, they get capital appreciation on equity shares by selling them in secondary market. It is a risky investment to invest in equity shares thus the investors get voting rights. They enjoy the right to maintain the proportionate interest in profits, assets and control of the company. They have pre-emptive Right which means if a company issues any additional shares then company is under obligation to pay the additional shares to the existing shareholders first before offering it general public. Investors’ liability is restricted only to the extent of face value of the shares purchased by the investors. The personal properties of the investors are not at stake.
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