Equity share capital remains with the company. It is given back only when the company is closed.
Equity Shareholders possess voting rights and select the company’s management.
The dividend rate on the equity capital relies upon the obtainability of the surfeit capital. However, there is no fixed rate of dividend on the equity capital.
Types of Equity Share
Authorized Share Capital- This amount is the highest amount an organization can issue. This amount can be changed time as per the company's recommendation and with the help of a few formalities.
Issued Share Capital- This is the approved capital that an organization gives to the investors.
Subscribed Share Capital- This is a portion of the issued capital that an investor accepts and agrees upon.
Paid Up Capital- This is a section of the subscribed capital, that the investors give. Paid-up capital is the money that an organization really invests in the company’s operation.
Right Share- These are those types of shares that an organization issues to their existing stockholders. This type of share is issued by the company to preserve the proprietary rights of old investors.
Bonus Share- When a business split the stock to its stockholders in the dividend form, we call it a bonus share.
Sweat Equity Share- This type of share is allocated only to the outstanding workers or executives of an organization for their excellent work in providing intellectual property rights to an organization.
Also Check: What are Stockholders?
Merits of Equity Shares Capital
ES (equity shares) does not create a sense of obligation and accountability to pay a rate of dividend that is fixed
ES can be circulated even without establishing any extra charges over the assets of an enterprise
It is a perpetual source of funding, and the enterprise has to pay back; exceptional case – under liquidation
Equity shareholders are the authentic owners of the enterprise who possess the voting rights
Demerits of Equity Shares Capital
The enterprise cannot take either the credit or an advantage if trading on equity when only equity shares are issued
There is a risk, or a liability overcapitalization as equity capital cannot be reclaimed
The management can face hindrances by the equity shareholders by guidance and systematizing themselves
When the firm earns more profits, then, higher dividends have to be paid which leads to raising in the value of the shares in the marketplace and its edges to speculation as well
Difference between Equity Shares and Preference Shares
Equity shares and Preference shares are the two types of shares that a company issues. An equity share is an ordinary share. Preference share experience the perquisites of the dividend distribution first. The equity stockholders get the opportunity to cast their vote in major business decisions. The company preference share receives the dividend at a fixed rate. Whenever there is an issue with the company, the preference share gets the right to return the capital before the equity share.
