Meaning: -According to the companies Act, 1956. “All shares which are not preference shares are equity shares”. The capital collected by a company
by issuing equity shares is called Equity Shares Capital. Equity shares do not
have claim prior to preference shares for payment of dividend and repayment of
capital. If a company does not earn profit in a particular year then equity
shareholders will not get any dividend. Thus, the equity share capital is also
called as Risk Capital.
Features of Equity shares
capital: -
1. No
preferential (special) rights: -Equity share holders get dividend only after the dividend is paid to
preference shareholders. Similarly, at the time of winding up of the company,
the claim of equity shares is considered at the end.
2. No
fixed rate of dividend:
-Company does not commit any fixed rate of dividend on equity shares. The rate
of dividend keeps changing from year to year as per company’s financial
position. The rate of dividend is recommended by Board of Directors every year
and declared by share holders.
3. Voting
Rights: -Every equity
shareholder has voting right in the proportion with the shares held by him.
They can vote on all the matters placed before the meeting. As per the rights
conferred upon the equity shareholders by the companies Act, the voting rights
can be exercised either personally or through proxy (only after observing certain
rules)
4. No
claim on unpaid dividend:
-If a company incurs loss or earns less profit in a particular year then it
does not pay any dividend to equity share holders. The equity shareholders
cannot claim this dividend in future.
5. Irredeemable
nature: -Company does
not repay the money raised through equity shares during its lifetime. This
money is repaid only at the time of winding up of the company.
6. Chances
of prosperity (richness):
-Equity shareholders are paid dividend at fluctuating rate as per the profits
of the company. They claim the entire amount of residual (remaining) of
distributable profits. So, if company earns well, the equity shareholders also
prosper along with the company.
7. Privileges
(rights): - It is the
privilege and right of equity shareholders to have priority in purchasing
shares in case of further public issue of shares. It is called as Right Issue.
Equity shareholders are also entitled to receive bonus shares which are issued
by companies as a gift.
8. Less
face Value : - As
compared to preference shares, the equity shares are of less face value like Rs 10/- or even Rs 1/-
