Briefly explain any five merits of issuing equity shares

CBSE Class 11 CBSE Class 11 Business Studies
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1

Briefly explain any five merits of issuing equity shares.
OR
Write a short note on equity shares and also mention its merits.

2

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:

  1. Equity share capital does not create any charge on the assets of the company.
  2. Voting rights of equity shareholders assure democratic control over the management of the company.
  3. 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.
  4. There is no burden on the company in respect of dividend payable to equity shareholders because it is not compulsory to pay dividend.
  5. Equity shares are generally suitable for those investors who are willing to undertake risk for higher returns.
  6. Equity share capital increases the credit-worthiness of the company and also provides confidence to prospective loan providers.