Equity shares
Equity shares were earlier known as ordinary shares. Equity shares are most common share. The holders of these shares are the real owners of the company. These are the real risk bearing shares of the company. Equity shareholders control the business. They have voting right to elect directors of the company and the directors control the business. Earlier all equity shares had equal voting rights. But the recent amendment in the companies Act 2000, permits companies to issue equity shares with differential voting rights. There is no specific assurance to equity shareholders regarding the rate of dividend. If the company makes sufficient profit in the year to declare the dividend it mayl do so and if not no dividend will be paid. Even if they have adequate profits, dividend may not be declared if the management feels that the profits should be earmarked for future contingencics. Each share has certain face values which is also called nominal value or normal value. Depending upon the instrinsic value of shares the market value fluctnates.
Features of equity shares:
Different values
Equity shares contains face value which is also called normal value. Depending upon the instrinsic value of the shares, the market fluctuates. Market value is the value at which the shares are traded in the stock exchange.
Risk Capital: It is the equity shares that provides primilarly the risk capital of the business. These shareholders take more risk as compared to preference shares.
Permenant Capital
The capital procured by issue of equity shares is a permenant source of funds to the company as it need not be reedemedduring the life time of the company. At the same time shareholders can get money by sale of shares in the stoct exchanges.
No need for security
There is no need to offer security to the shareholders. Hence, the assets of the company are free from charge.
Residual claim to income
Equity share holders are paid dividend only after paying it to the preference share holders.
No fixed rate of return
The rate of dividend of these shares depends upon the profits to the company. They may b paid a higher rate of dividend or they may not get anything.
No obligation to pay dividend
The company has no obligations to pay dividend to equity share holders even though the company get profits. Whether dividend should be paid or not, even if it is to be paid what should be the rate of dividend, etc. would be decided by the board of diirectors in general body meetings.
Residual Claim to assets
At the liquidation of the company, the equity shareholders will be paid only if any amount is left after all the other claims against the company are settled.
Right to Control
Equity share holders have voting rights and they elect board of directors who controls the affairs of the company. Thus the equity shareholders are collectively responsible for efficient management of the company.
Form the basis for loans
Equity share capital forms the basis for getting the loans to the business.
Pre-Emptive Rights
Any share holders owning 2% of the existing issued capital is entitled to a preemptive rights to acquire 2% of additional shares issued by the company. He can exercise or sell or renounce this right.
Speculation
Investing public purchase equity shares with speculative motive. This is possible because the market value of shares fluctuates depending upon the good will of the firm, rate of dividend is declared.
Limited Liabilty
In the case of companies where the liabilty is limited by shares the liabity of the share holders is limited only upto the unpaid value of shares. He is not personally responsible for the liability of the company as in the case of sole trading concern and partnership firm.