Merits of Equity Shares
1. Ideal for Adventurous Investors: Equity shares are appropriate for investors who are willing to take on risk in exchange for higher returns.
2. No Obligation to give Dividends: The payment of dividends to equity shareholders is optional. As a result, the company bears no burden in this regard.
3. Source of Fixed Capital: Equity capital is permanent capital because it is repaid only when a company is liquidated. It provides a buffer for creditors in the event of a company’s insolvency because it is listed last on the list of claims.
4. Provides Credit Standing: Equity capital provides the company with creditworthiness and confidence in potential loan providers.
5. No Charge on Assets: Funds can be raised through an equity issue without placing a charge on the company’s current assets. If necessary, a company may freely mortgage its assets in exchange to obtain financing.
6. Democratic Management: The voting rights of equity shareholders ensure democratic control over the company’s management.
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