Are You Confused about Equity Shareholds?

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Equity shares are the shares that the companies issue to the public for long term financing. Legally the equity shares are not redeemable in nature and that is why they are referred to as long term source of finance for a company. The investors of the equity shares have the right to vote, share the profits and claim the assets of the company. The value of equity shares is expressed in the various term like par value or face value, book value, issue price, market price, intrinsic value and so on.

Advantages of Equity Shares

CAPITAL GAIN

The other source of return on investment apart from dividend is the capital gains. Gains which arise due to rise in market price of the share.

LIMITED LIABILITY

Liability of shareholder or investor is limited to the extent of the investment made. If the company goes into losses, the share of loss over and above the capital investment would not be borne by the investor.

STOCK SPLIT

Stock split means splitting a share into parts. How should an investor be benefited by this? By splitting of share, the per-share price reduces in the market which eventually increases the readability of share. At the end, stock split results in higher volumes with a number of investors leading to high liquidity of the share.

Increase Your Equity Share

They are permanent in nature.

Equity shareholders are the actual owners of the company and they bear the highest risk.

Equity shares are transferable, ownership of equity shares can be transferred with or without consideration to other person.

Dividend payable to equity shareholders is an appropriation of profit.

Equity shareholders do not get fixed rate of dividend.

Make Your Equity Share as Income

Equity shares are the shares joint stock companies issue to the public as the main source of long-term financing. The reason it’s referred to as long-term financing is because equity shares are legally not redeemable in nature. Equity share value is stated in terms of the face value of each share, which is also called issue price, par value, book value, or market value. Usually, the asset’s value minus liabilities equals the asset’s equity value. To shorten this to an equation for accounting purposes, it’s Assets-Liabilities=Equity.

Shareholder’s Point of View

  • Equity shares are liquid in nature and can be sold easily in the capital market.
  • The dividend rate is higher for the equity shareholders when the company earns high profits.
  • The equity shareholders have the right to control the company’s management.
  • The equity shareholders not only get the benefit of dividend but they also get the benefit of price appreciation in the value of their investment.

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