Equity Shares Homework Assignment Help

What is Equity Share? These are the corner stones of the financial structure of the company. On the strength of these shares, the company procures other sources of capital. Equity shares as a source of long term funds for the company has the following characteristic features:

1.    Investors in the equity shares are the real owners of the company. As such, the investors in equity shares are entitled to the profits earned by the company or the losses incurred by the company.

2.    Funds raised by the company by way of equity shares are available on permanent basis. In other words, funds raised by the company during by way of equity shares are not required to be repaid only at the time of closing down of the company i.e. winding up of the company.

3.    Funds raised by the company does not offer any of its assets by way of security to the investors in equity return which company pays on equity shares is in the form of dividend. The rate of dividend is not fixed. It generally depends upon the profits earned by the company. However, a profit making company is under no obligation to pay dividend on equity shares.

4.    Equity shares as a source of raising the long term funds is a risk free source for the company, as the company does not commit anything on equity shares.

5.    Equity shares as an investment is very risky for the investors. As such, the investors are granted the voting rights, the investors can participate in the affairs regarding the business of the company. These voting rights are generally proportionate voting rights, in the sense the voting rights of the investors are in proportion to their investment on the overall capital of the company. However, it should be noted that due to some recent amendments to the companies Act, 1956, it may be possible for the companies to issue the equity shares with disproportionate voting rights.

6.    Equity shareholders may not be able to compel the company to pay the dividend, but they enjoy the right to maintain the proportionate interest in profits, assets and control of the company. As such, if the company wants to issue additional equity shares, it is under legal obligation to offer these equity shares to the existing shareholders first, before going to the open markets as a general offer. This right of equity shareholders is called “Pre-emptive Right”.

7.    In financial terms, equity shares as a source of raising the funds is a costly source available to the company.