Question

Explain the advantages of equity shares, as a source of finance.

Answer 1

• Equity shares impose no burden on the company resources because the dividend is payable only at the discretion of the management.
• The liability of equity shareholders is limited to the face value of shares subscribed by them.
• A company with substantial equity capital commands prestige in the investment market.
• Equity shareholders have the pre-emptive right to subscribe to new shares issued by the company.
• The face value of an equity share is generally low.
• The value of an investment in equity shares may increase manifold during the boom and prosperity of the company-holders of these shares earn capital gains.
• Equity shares do not create any charge on the assets of the company.
• Shareholders are not required to pay income tax on dividends received from the company.