Equity Share – a common source of finance of a firm

Equity shares are the main source of finance of a firm. These shares are long-term financing sources for any company. It is issued to the general public. These shares are issued to the general public and are non-redeemable in nature. Investors in such shares hold the right to vote, share profits and claim assets of a company.

Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds. These shares are issued to the general public and are non-redeemable in nature.

Equity represents the shareholders’ stake in the company, identified on a company’s balance sheet. Equity shareholders enjoy full voting rights in all matters of the company. They are entitled to the residual income of the company, but they enjoy the right to control the affairs of the business and all the shareholders collectively are the owners of the company. They have the right to elect directors and participate in the management and control of the company. They also share residual profits

Equity represents the value that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debts were paid off. Equity share market tends to be the most volatile segment in a stock market, profoundly affected by minor fluctuations. Returns on equity investments are paid out after all other obligations of a company have been met.

Types of Equity Share

  • Authorized Share Capital – This amount can be changed time as per the companies recommendation and with the help of few formalities.
  • Issued Share Capital- This is the approved capital that an organization gives to the investors.
  • Subscribed Share Capital- This is a portion of the issued capital which an investor accepts and agrees upon.
  • Paid Up Capital – Paid-up capital is the money that an organization really invests in the company’s operation.
  • Right Share – This type of share is issued by the company to preserve the proprietary rights of old investors.
  • Bonus Share – When a business split the stock to its stockholders in the dividend form, we call it a bonus share.

Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds. They are the foundation for the creation of a company. During a market downturn, the production cycle of a business is affected, thereby reducing profits generated by a business. This lower share of profit is used up to meet all existing liabilities before funds are disbursed as equity investment returns. Thus equity markets tend to be adversely affected during market downturn.

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