What are Equity shares?

An equity share, normally called as ordinary share also depicts the form of part ownership or fractional in which a member, as a fractional owner, initiates the maximum entrepreneurial liability related with a trading concern. The members of such shares are shareholders of the enterprise and possess voting rights.

Features of Equity Shares :

  • 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

Merits of Equity shares :

  • ES (equity shares) do 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 :

  • 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 over capitalisation 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 has to be paid which leads to raise in the value of the shares in the marketplace and it edges to speculation as well

Also Explore: Tips to Study Accountancy

The above mentioned is the concept, that is elucidated in detail about ‘What are Equity shares?’ for the Commerce students. To know more, stay tuned to BYJU’S.