Equity Shares definition

Equity Shares definition: The Shares which enjoy dividend and right to participate in the management of Joint Stock Company are called equity shares, or, ordinary shares. They are the owners and real risk bearers of the company. Equity shares can be defined as per as our Indian Companies Act (1956) as, “Shares which are not preference shares are equity shares, or, ordinary shares”. Equity shareholders are the real owners of the company and, therefore, they are eligible to share the profits of the company. The share given to equity shareholders in profits is called “Dividend”. At the time of winding of company, the capital is paid back last to them after all other claims have been paid in full.
Advantages of Equity Shares:
a) The company has no immediate liability to pay it.
b) No fixed dividend obligation.
c) Increases creditworthiness of business, ceteris paribus.
d) No charge created on assets of the business.
e) Shareholders control the company.
f) Limited liability of the investors.
g) High dividends.
h) No collateral security needed.
i) g. Increases firm credibility.
Disadvantages of Equity Shares:
a) Equity dividend not tax- deductible.
b) High cost of equity issue.
c) Gradual dilution of shareholder’s control over business.
d) Manipulation by a few shareholders.
e) Dividend at the discretion of the Directors.
f) Very risky investment.
g) Residual claim on investments.