Question

Define shares. Mention any two advantages of it.

Answer 1

Equity shares represent the ownership of a company and thus the capital raised by the issue of such shares is known as ownership capital or owner’s funds. They are referred to as ‘residual owners’. They enjoy the reward as well as bear the risk of ownership. Their liability is limited to capital contributed. They have the right to participate in management.

Advantages:
- Equity capital serves as permanent capital as it is to be repaid only at the time of liquidation of a company.
- Equity capital provides the creditworthiness to the company and confidence to prospective loan providers.