Today in this post we will discuss about equity shares.
what are equity shares?
Meaning of equity shares, its types.
Advantages and disadvantages of equity shares (Merits and Demrits of Equity shares)
Q:- what is share ? what are the natures of it?
Answer:- Meaning and definition :- according to companies act 2013 A share can be defined as
“A share in the share capital of a company and includes stock except where a distinction between stock and share is expressed or implied.”
Nature of shares:-
1.Nominal value:- Each share must have its nominal value.
2. Equals denomination :- All the shares in a company of same class are of equals denomination.
3. Right and interest :- every shareholder of a company has certain rights and interests i.e right to dividend, right to vote etc.
4. Number :- Each share shall be distinguished by its appropriate number.
Q:- Kinds of Shares:-
According to section 43 of the companies act 2013, a company can issue only two types of shares :-
(a) preference shares
(b) Equity shares
Equity shares:- according to section 43( a)of the companies act 2013 “an equity share is a share which is not preference .”An equity share does not carry any preferential right . Equity shares are entitled to dividend and repayment of capital after the claims of preference shares are satisfied . Equity shareholders control the affairs of the company and have right to all the profits after the preference dividend has been paid.
Preference shares:- according to section 43 (a) of the companies act a share that carries the following two preferential rights is called ‘preference shares’.
1.preferential shares have a right to receive dividend at a fixed rate before any dividend given to equity shares.
2. And preference shares have a right to get their capital returned before the capital of equity shareholders is returned in case the company is going to wind up.
Q:- Explain the meaning of share capital and its various categories?
Share capital of a company can be divided into following categories:-
1.Authorised capital:- This is the maximum limit of a company is authorised to rise ,beyond which company cannot raise and is the capital clause is altered.
2. Issued capital :–This is the part of authorised capital which has been altered for cash, for consideration other than cash or a bonus share.
3. Subscribed capital:- it is that portion of issued capital which has been subscribed by the public.
4. called up :- it is that portion of subscribed capital which the shareholder are asked to pay too the company.
5. Called up capital:- the amount of capital which has been actually paid by the shareholder to the company.
6. Reserve capital:- a portion of uncalled capital which the company decided to retain in the funds of the share holder liquidation.
Q:- what is equity share and its kinds? state advantages and disadvantages of it.
Ans:- equity shares means those shares which do not enjoy any preferential right as payment of dividend and repayment of capital at the time of liquidation. After satisfying the rights of preference shares the equity shares shall be entitled share in the residual amount of the distributable profits of the company.
Features of equity shares:-
1.Voting rights :- Equity share holders are entitled to cast the voting rights in the annual general meeting.
2.No fixed dividend:- equity shareholders are not entitled to get fixed dividend .if the company fails to earn any profit no dividend is paid to them.
3. No preference:- at the time of liquidation preference shareholders are paid first from surplus then equity shareholders for their capital contribution to the company.
Merits of Equity shares :-
1 . Face value of equity shares is less as compared to preference shares
2equity shareholders are paid higher dividend when company earns maximum profit
3. equity shares are more liquid as compared to preference shares.
4.These shareholders enjoy voting rights.
5 . Equity dividend is not a charge against profit.
6. it gives maximum return in the long run.
7. Equity capital can be used for a long period of time .
8. Equity share holders enjoy benefit of trading on equity and right issue.
Demerits of Equity shares:-
1. In case of loss shareholders are not paid any dividend.
2.equity dividend is not deductible in computing taxable income of the computer .
3.fresh issue dilute the EPS existing shareholders .
4.New issue may dilute the ownership and control of the existing shareholders.
5. flotation cost is higher than other securities.
Kinds Of Equity Share:-
1.Equity shares with voting rights.
2.Equity shares without voting rights
3.Equity shares with different right.