S.N.B.

P COLLEGE OF ARTS,COMMERCE,SCIENCE
AND
MANAGEMENT STUDIES

principle of finance
on
EQUITY SHARES
PRESENTED BY :
VARSHA .A.
CHOUDHARY
MANISHA .S. MENKUDLE
Roll NO:
BB231092

BB231049
INTRODUCTION
 Equity shares are also known as ordinary shares .
 They are the form of fractional or part ownership in which the shareholders ,
as a fractional owner, takes the maximum business risk .
 The holders of equity shares are members of the company and have
voting rights .
 Equity shares are the vital source for raising long –term capital .
 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 .
 Equity shareholders are paid on the basis of earning of the company and do
not get a fixed dividend.
 Through their right to vote , these shareholders have a right to participate in the
management of the company.
Types of equity shares

 Authorised Share Capital: It is the maximum capital amount any company

can issue. The ceiling on these shares can be changed at times depending on
profitability, several shares issues, rules and regulations and other criteria.
 Subscribed Share Capital: This is that portion of issued capital where the
subscriber has already decided and agreed to.
 Paid-Up Capital: This is the part of the subscribed capital for which only the
investors pay. Thus, the paid-up capital is the actual amount that is directly
infused as an investment.
 Issued Share Capital: That part of the authorised share capital which is
offered by the company in the form of shares is termed the issued share capital.
Merits of equity shares
 Equity shares are highly liquid and can be sold at any point in time.
 The higher the profits of the issuing company, the more the dividend the
shareholders get.
 All shareholders have the right to vote and decide which way the
management should move in times of crisis.
 Besides the yearly dividend, the appreciation of the value of shares is another
way in which shareholders are benefitted.
 Equity shares can be issued without creating any charge over the assets .
 Company need not have the forced obligation to pay dividend to equity
shareholders .
Demerits of equity shares
 There is no guarantee that a dividend will be paid each year. It depends on the
company’s performance.
 Equity shareholders tend to be very scattered or may own an insignificant
percentage of a company’s total share capital. Under these situations, it may be
difficult for shareholders to exercise any control over an organisation’s
benefits.
 Equity shareholders bear the highest amount of risk of the issuing company.
 Fluctuations in the market value tend to erode the profits made by these
shareholders.
Features of equity shares
▶ Permanent capital: Equity shares are irredeemable shares. The amount received
from equity shares is not refundable by the company during its life time . Thus
equity share capital is long term and permanent capital of the company .
▶ Fluctuating dividend : Equity shares do not have a fixed rate of dividend . The
rate of dividend depends upon amount of profit earned by company . If company
earns more profit , dividend is paid at higher rate. The equity shares get dividend
at fluctuating rate .
▶ Rights : Equity shareholders enjoy certain rights .
o Right to vote : It is the basis right of equity shareholders through which they
elect directors , alter memorandum and articles of association ,etc .
o Right to share in profit : It is an important right of equity shareholders . They
have right to share in profit , when distributed as dividend.
o Right to inspect book : Equity shareholders have right to inspect statutory books
of their company .
 No preferential right: Equity shareholders do not enjoy preferential right in
respect of payment of dividend .They are paid dividend only after dividend
on preference shares has been paid .
 No charge on asset : The equity share do not create any charge over
assets of the company
 Bonus issue : Bonus shares are issued as gift to equity shareholders. These
shares are issued free of cost to existing equity shareholder. These are issued
out of accumulated profit
 Face value : The face value of equity shares is low . It can be generally rs
10 per share or even rs 1 per share
Conclusion
▶ Equity shares represent ownership in a company, entitling shareholders to a
portion of its profits and voting rights. They are a common form of long-term
financing for businesses, offering potential for capital appreciation and
dividends. However, they also carry risks, such as market volatility and
dilution of ownership through additional share issuances. Equity shares are an
essential component of a company's capital structure, providing a source of
permanent capital. Unlike debt, equity shares do not impose a mandatory
obligation to pay dividends or interest, making them a flexible financing
option. Additionally, equity shareholders have residual claim on the company's
assets, meaning they are paid after all other liabilities are settled in case of
liquidation. Overall, equity shares play a crucial role in raising capital for
companies and offer investors the potential for long-term growth and returns,
albeit with accompanying risks.