Features and Merits of Equity Shares

Features of Equity Shares

  • Equity share capital (or equity shares) possesses the following core features:

    • Ownership Capital: Equity shares represent the actual ownership of a company. Therefore, the capital raised by the issue of such shares is referred to as ownership capital.

    • Pre-requisite Capital: Equity share capital is an essential prerequisite to the creation of a company. In its absence, no company can be conceived.

    • Basis of Return: Equity shareholders do not receive a fixed dividend or return; instead, they are paid on the basis of earnings generated by the company.

    • Residual Ownership: Equity shareholders are known as residual owners because they receive whatever profit or asset value is left after all other claims against the company have been fully settled.

    • Reward Vs. Risk: Equity shareholders enjoy the potential rewards and bear the inherent risks associated with ownership. However, their total financial liability is limited strictly to the extent of capital contributed by them.

    • Participation in Management: Through their fundamental right to vote, equity shareholders hold the right to participate in the management of the company.

Merits of Equity Shares

  • Raising funds through equity shares provides several distinct financial and operational advantages:

    • Suitable for Risk Takers: Equity shares are suitable for investors who are ready to take on financial risk in exchange for the prospect of higher returns.

    • No Fixed Burden: Payment of dividends to equity shareholders is not compulsory. Therefore, equity share capital creates no fixed financial burden on the company by way of mandatory returns.

I understand your goal completely! We will follow your study plan step-by-step, making sure every single heading and detailed description from your notes is memorised for your Class 11 CBSE Business Studies exam.

We will start with the Features of Equity Shares (6 points in total).

Question 1: What is the 1st feature of Equity Shares? Please state the heading and explain its full description.