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Equity Shares

Updated on March 7, 2023

Equity share also known as ‘ordinary share’, ‘common share’ or simply a ‘share’ means ‘owning a part’ of the company or ‘part ownership’ in the company where each owner or shareholder is a fractional owner as per the number of shares owned. Equity shares provide the owners a right to vote, to participate in the company’s profits, its meetings and to benefit from other actions like dividends, rights etc.

Features of Equity Shares

Some features of Equity Shares are:
1. Equity Shareholders have voting rights and control over the company.
2. The dividend amount or rate depends on the company’s surplus, but it is not a fixed feature of equity shares.
3. A company can raise capital through debt or through equity by issuing shares, which dilutes its ownership.
4. Issuing equity shares for raising capital is defined as a long-term financing option for companies.

Advantages of equity shares

Some advantages of Equity Shares are:
1. Equity Shares come with higher risk, but have the potential for higher returns.
2. The voting rights in Equity Shares come as a powerful tool in the hands of shareholders and they can vote for critical decisions related to the company.
3. Equity shares bring the additional benefit of dividends, as and when declared from the company’s reserves or surplus.

Limitations of Equity Shares

Some limitations of Equity Shares are:
1. In case of a company’s liquidation, common stockholders have the lowest priority for receiving any proceeds.
2. Equity Shares come with high risk of price fluctuations and sometimes even with the potential of loss of entire capital.