Advantages Disadvantages Of Equity Shares

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Advantages and disadvantages of equity shares

Advantages of Equity Shares

To the company:

While issuing the equity shares, the company does not accept any obligation of any type. The company neither offers any security to the investors in the form of assets of the company nor commits the repayment of these shares during the life time of the company nor commits the payment of any dividend to the shareholders. This is a total risk free source of capital for the company.

To the investors:
a. As per the law, the liability of the equity shareholders is restricted only to the extent of face value of the shares purchased by the investors. The personal properties of the investors are not at stake even if the company fails to fulfil its contractual obligations.
b. Possibility of getting higher returns is always there in case of equity shares. The investors can gain from equity shares in two forms. One, the regular dividend paid by the company in the form of cash or by way of bonus shares and second, the capital appreciation received by the investors by selling the equity shares in the secondary market i.e. stock exchanges. As such, equity shares are a good investment attracting the risk taking investors.

Distadvantagesof Equity shares

a. As the investors in equity shares enjoy the voting powers to control the afairs of the company, the management of the company is always under constant danger of gr=etting interferred and disturbed in the regular administration.

b. The cost of associated with the equity shares is on higher side as compared to the borrowed capital. By issuing more and more equity shares, the company looses the cost advantage.

c. Many categories of investors i.e. institutional investors may not be able to invest in the equity shares due to various statutory restrictions.

d. The excessive issue of equity shares may result in over capitalisation future.

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