Question

Naved says, he is a bold investors so he does not like preference shares he therefore bought Equity Shares. What are the risks associated with it?

Answer 1

1. The primary risk bearers are those who own stock shares. They offer risk capital since equity stockholders risk losing their whole investment if the business fails and is shut down.
2. A residual right to the business belongs to equity shareholders. Equity owners own the income that remains after creditors are paid and preference shareholders get dividends.
3. There is no such dividend rate on these shares.
4. After interest on debentures and dividends on preference shares are paid, the remaining revenues are used to pay dividends on equity shares.
5. After all debts and preference shareholders have been settled in full, equity stockholders receive payment upon the business’s winding up.