Equity Share: Advantages and Disadvantages | Finance Sources

After reading this article you will learn about the Advantages and Disadvantages of Equity Share.

Advantages of Equity Shares:

1. Equity shares do not create any obligation to pay a fixed rate of dividend.

2. Equity shares can be issued without creating any charge over the assets of the company.

3. It is a permanent source of capital and the company has not to repay it except under liquidation.

4. Equity shareholders are the real owners of the company who have the voting rights.

5. In case of profits, equity shareholders are the real gainers by way of increased dividends and appreciation in the value of shares.

Disadvantages of Equity Shares:

1. If only equity share are issued, the company cannot take the advantage of trading on equity.

2. As equity capital cannot be redeemed, there is a danger of over capitalisation.

3. Equity shareholders can put obstacles in management by manipulation and organising themselves.

4. During prosperous periods higher dividends have to be paid leading to increase in the value of shares in the market and speculation.

5. Investors who desire to invest in safe securities with a fixed income have no attraction for such shares.

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