Equity Shares are one of the main sources of funds for Companies. An individual can buy equity shares of any company listed on the stock exchange like NSE and BSE. All equity shareholders are part-owners of the company. Equity shareholders have the right to control management decisions of the company through the power of voting.
Aims And Objectives Of Equity Shares
- Equity Shares are issued by companies to pool in investments.
- Funds raised by a company through equity shares are used for expansion.
- Companies decide to raise funds through Equity Shares instead of debt as they save on paying high interest.
- Equity Shares are purchased by investors with a view of earning profits through capital gains and dividends.
Advantages Of Equity Shares
- The returns earned on Equity Shares are high, so is the risk involved.
- Dividends received are directly proportional to the number of Equity Shares held by an investor.
- Equity Shares are liquid in nature, and can be easily traded over stock exchanges.
- Equity Shareholders claim ownership rights over the Company and its assets.
Disadvantages Of Equity Shares
- Receiving dividends is subject to funds remaining post payment of tax, debentures and so on. Receiving dividends is not a certainty each year.
- Equity Shareholders are scattered, hence they are often not able to exercise their voting rights and have almost no power over crucial management decisions.
- Equity Share value fluctuates often in the market, thereby the risk of investment is high.
- Issuing fresh shares depreciates the value of the equity shares held by existing investors.
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