The capital obtained by the issue of equity shares is known as equity share capital. It is an important source of obtaining long-term finance. Equity shareholders are the owners of the company. The rate of dividend is paid after meeting all other claims. These shareholders have a right to vote and participate in the management of the company. They enjoy the reward as well as bear the risk.Merits:
- Equity share capital does not create any charge on the assets of the company.
- Voting rights of equity shareholders assure democratic control over the management of the company.
- Equity share capital is to be repaid only at the time of winding up of a company and hence it is permanent capital of the business.
- There is no burden on the company in respect of dividend payable to equity shareholders because it is not compulsory to pay dividend.
- Equity shares are generally suitable for those investors who are willing to undertake risk for higher returns.
- Equity share capital increases the credit-worthiness of the company and also provides confidence to prospective loan providers.