Advantages and disadvantages of equity shares



Advantages of equity shares:

1/ Equity shares do not pay any obligation to pay a fixed rate of dividend.
2/ Equity share can be issued without creating any charge over the assets of the company.
3/ It is a permanent source of capital and the company has not to repay it except under liquidation.
4/ Equity shareholders are the real owners of the company who have the voting rights.
5/ In case of profits, equity shareholders are the real gainers by way of increased dividends and appreciation in the value of shares.


Disadvantages of equity shares: 

1/ If only equity share are issued, the company cannot take the advantage of trading on equity.
2/ As equity capital cannot be redeemed, there is a danger of over capitalisation.
3/ Equity shareholders can put obstacles in management by manipulation and organizing themselves.
4/ During prosperous periods higher dividends have to be paid leading to increase in the value of shares in the market and speculation.
5/ Investors who desire to invest in safe securities with a fixed income have no attraction for such shares.

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