Equity shares are the most important sources of raising long term capital by a company. They represent the ownership of a company and therefore, the capital raised by issue of these shares is called owner’* funds. Features of equity shares:
Voting Rights: They have voting rights and hence they are the owners of the business.
Participation in Management: Using their voting rights, equity shares holders get a right to participate in company’* management.
Return: These shareholders do not get a fixed dividend. They get according to the earnings of the company. They receive what is left after all other claims on the company’* income and assets have been settled.
Risk: They enjoy the reward and also bear the risk of ownership. Therefore, it is also called risk capital.
Permanent Capital: Equity capital serves as permanent capital as it is to be repaid only at the time of liquidation of a company.
No charge on assets of the company: Funds can be raised though equity issue without creating any charge on the assets of a company. The assets of a company are therefore, free to be mortgaged for the purpose of borrowings, if the need be.
More Costly: The cost of equity shares is generally more as compared to the cost of raising funds through other sources.
