Equity shares are the most important source of raising long-term capital for a company. Equity shares represent the ownership of a company and thus the capital raised by the issue of such shares is known as ownership capital or owner’s funds. Equity share capital is a prerequisite to the creation of a company. Equity shareholders do not get a fixed dividend but are paid on the basis of earnings by the company.
Their liability, however, is limited to the extent of capital contributed by them in the company. Further, through their right to vote, these shareholders have a right to participate in the management of the company. These shareholders take more risk as compared to preference shareholders.
Features of Equity Shares:
- Equity share capital remains permanently with the company. It is returned only when the company is wound up.
- Equity shareholders have voting rights and elect the management of the company.
- The rate of dividend on equity capital depends upon the availability of surplus funds. There is no fixed rate of dividend on equity capital.