Finance / Investments
What is an Equity Share?
Posted Date: 17-Mar-2010
Mohammed Julfekar Haider
Equity Shares; Features of Equity Shares
Equity shares are those shares which are ordinary in the course of company's business. They are also called as ordinary shares. These share holders do not enjoy preference regarding payment of dividend and repayment of capital.Equity shareholders are paid dividend out of the profits made by a company. Higher the profits, higher will be the dividend and lower the profits, lower will be the dividend.
Features of Equity Shares:
(1) Owned capital:
Equity share capital is owned capital because it is the money of the shareholders who are actually the owners of the company.
(2)Fixed value or nominal value:
Every share has fixed value or a nominal value. For example, the price of a share is Rs. 10/- which indicates a fixed value or a nominal value.
(3) Distinctive number:
Every share is given a distinct number just like a roll number for the purpose of identification.
(4) Attached rights:
A share gives its owner the right to receive dividend, the right to vote, the right to attend meetings, the right to inspect the books of accounts.
(5) Return on shares:
Every shareholder is entitled to a return on shares which is known as dividend. Dividend depends on the profits made by a company. Higher the profits, higher will be the dividend and vice versa.
(6) Transfer of shares:
Equity shares are easily transferable, that is if a person buys shares of a particular company and he does not want them, he can sell them to any one, thereby transferring the shares in the name of that person.
(7) Benefit of right issue:
When a company makes fresh issue of shares, the equity shareholders are given certain rights in the company. The company has to offer the new shares first to the equity shareholders in the proportion to their existing share holding. In case they do not take up the shares offered to them, the same can be issue to others. Thus, equity shareholders get the benefits of the right issue.
(8) Benefit of Bonus shares:
Joint stock companies which make huge profits, issue bonus shares to their ordinary shareholders out of the accumulated profits. These shares are issued free of cost in proportion to the number of existing equity share holding. In case they do not take up the shares offered to them, the same can be issued to others. Thus, equity shareholders get the benefits of the right issue.
Equity shares are always irredeemable. This means equity capital is not returnable during the life time of a company.
The nominal or par value of equity shares is fixed but the market value fluctuates. The market value mainly depends upon profitability and prosperity of the company. High rate of dividend is paid with high rate of profit, the shareholders capital is appreciated through an appreciation in the market value of shares. (i.e. higher the rate of dividend, higher the market value of the shares.)
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