Merits of Equity Shares

What Are Equity Shares? 

Equity shares are shares that give people equity in a company. They can be bought and sold on the stock market just like any other share. The only difference is that the shareholders own more of the company and it’s considered to be more valuable because of this, so shareholders receive more money for their investment than money invested in a regular share.

The most common forms of equity shares are:

1) ordinary shares

2) preferred shares

3) convertible was

4) redeemable preference shares (RPS)

5) preferred stock/shares in a special purpose vehicle (SPV).

What Are Equity Shares?

If any person thinks of getting their product or service into the Indian market (or any market for that matter), then equity shares are essential. The term equity comes from the title of this post and is used here in a generic sense (for example, let’s say that we have an equity share in The Economist, assuming we have a share in them) but it is not necessary to use it that way.

1) They help you to get access to the capital needed to build and fund your product or business.

2)Equity shares help investors understand what you offer as a major bargain when issuing equity shares.

3) They give potential users an incentive to come back and review the company’s business.

The Advantages Of Buying Equity Shares

What are equity shares and why are they so important?

Equity shares market prices can fall or rise. They can be traded as well. There’s no guarantee that people will stick with a company, but it is very possible for two companies to be trading at the same price and still have different merits of their equity shares.

Anyway, the merits of equity shares are many and the biggest one is that they allow one to grow their wealth as well of the company, for example:

1) Equity shareholders have the right to vote (the power of making proposals) on all matters related to the company’s affairs such as:

a ) Buyout of a company (that means selling the company’s stock), or b ) Share price adjustment (that means changing the price of a company’s stock); or c ) Change in share capital (that means changing the number of shares in a company).

2) The amount of profit that each equity shareholder gets depends on how much they invested into the company. The profit amount depends on what type of investment was made into the company. If people invest in more share into the company than others will get a greater share of profits of the company.

This is a financial instrument that is used for raising funds for a start-up company or a growing company. The equity share will be eventually converted into stocks and traded in the market as per the rules and regulations of the securities exchanges (SEBI).

It is not easy to raise funds through equity shares because calculating the market value of a company is hard and they need to price the share appropriately so that , it should be subscribed by most.

The benefits of equity shares include:

– It allows one person’s contribution to help many people.

– It empowers people who have little or no money.

-It offers flexibility in decision making to everyone involved, including employees and investors.

– It gives an opportunity to take initiatives that may not have been fully funded before or which will face heavy competition in the marketplace from other investments by the same company or others.

Types Of Equity Shares

Right issue: The right issue of shares basically means offering shares to all existing equity or preference shareholders. The shareholders that are already present in the company are sent a notice or offered new shares first before the shares are further issued to the share market.

Preference Equity shares: These are the types of shares that are issued to the shareholders who get to access dividend payments before there is an issue of common stock dividends.

Bonus Shares: When the company issues shares to the shareholders in the form of bonus when there is a shortage of funds as to payout or release the reserves to shareholders as this does not involve any cash flow. There are various disadvantages and advantages of bonus shares like dividend, capital gain, high risk, fluctuation in the market,  limited liability etc.

Conclusion

In this article, the topic of equity shares is discussed briefly with examples, definitions and advantages. Equality shares is a topic that has been reviewed and discussed in both the academic and the professional environment for years.