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1. Equity shares
2. Merits types of equity shares introduction contents & evaluation from the
companys view point features of equity shares demerits
3. What are equity shares? An equity share, commonly referred to as ordinary share
also represents the form of fractional or part ownership in which a shareholder, as a
fractional owner, undertakes the maximum entrepreneurial risk associated with a
business venture. The holders of such shares are members of the company and
have voting rights. The holders of such shares are members of the company and
have voting rights. A company may issue such shares with differential rights as to
voting, payment of dividend, etc.introduction
4. Cumulative preference shares. A type of preference shares on which dividend
accumulates if remains unpaid. All arrears of preference dividend have to be paid
out before paying dividend on equity shares. they also enjoy priority over the
equity shareholders in payment of surplus. But in the event of liquidation, their
claims rank below the claims of the companys creditors, bondholders / debenture
holders. preferred stock/ preference shares: owners of these kind of shares are
entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly
before dividend can be paid in respect of equity share. bonus shares: shares
issued by the companies to their shareholders free of cost by capitalization of
accumulated reserves from the profits earned in the earlier years. rights issue/
rights shares: the issue of new securities to existing shareholders at a ratio to those
already held. types of equity shares
5. Debentures: bonds issued by a company bearing a fixed rate of interest usually
payable half yearly on specific dates and principal amount repayable on particular
date on redemption of the debentures. Debentures are normally secured/ charged
against the asset of the company in favour of debenture holders. government
securities (g-secs): these are sovereign (credit risk-free) coupon bearing
instruments which are issued by the reserve bank of india on behalf of government
of india, in lieu of the central government's market borrowing programme. These
securities have a fixed coupon that is paid on specific dates on halfyearly basis.
These securities are available in wide range of maturity dates, from short dated
(less than one year) to long dated (upto twenty years). security receipts: security
receipt means a receipt or other security, issued by a securitization company or
reconstruction company to any qualified institutional buyer pursuant to a scheme,
evidencing the purchase or acquisition by the holder thereof, of an undivided right,
title or interest in the financial asset involved in securitization. participating
preference share: the right of certain preference shareholders to participate in
profits after a specified fixed dividend contracted for is paid. Participation right is
linked with the quantum of dividend paid on the equity shares over and above a
particular specified level. cumulative convertible preference shares: a type of
preference shares where the dividend payable on the same accumulates, if not
paid. After a specified date, these shares will be converted into equity capital of the
company.
6. Equity shares can be issued without creating any charge over the assets the
shareholders can participate in the management of the company through voting
rights. the obligation to repay the equity capital arises only at the time of
liquidation of the company. equity share is a permanent source of funds which
facilitate flexibility in usage of funds. company need not have the forced
obligation to pay dividend to equity shareholders. merits of equity shares
7. Equity shareholders have to bear all the losses at the time of liquidation.
Interruptions of many persons are involved in the company working. So, in some
cases, it creates equity shares always associated with the expectations of the
investors. It is practically a difficult task to fulfill the expectations of the investors.
demerits of equity shares: investors who have a desire to invest in safe or fixed
returns have no attraction of such shares. when the finance has to be raised for
less risky projects, then this is not a good source of raising finance. If only equity
shares are issued then the company can not avail the benefits of trading on equity.
delay in decision-making.
8. Features of equity shares 1. Right to income 2. Right to control 3. Pre-emptive
right 4. Right to liquidation
9. Equity earnings which are retained in firm tend to increase market value of
equity shares the equity investors have residual claim to the income of company.
The income left after satisfying the claims of all other investors belongs to equity
shareholder. This income is simply equal to profit after tax minus preference shares
dividend. The income of equity shareholders may be retained by the firm or paid out
as dividends. features of equity shares 1. Right to income : & earnings distributed
as dividend provide current income to equity shareholders.
10. Equity shareholders are owners of the firm. So they can elect the board of
directors2. Right to control & have right to vote on every resolution passed before
the company. The board of directors selects the management & management
controls the operations of firm. Hence, equity shareholders indirectly control the
operation of firm.
11. The pre- emptive right enables existing shareholders to maintain their
proportional ownership by purchasing the additional equity shares issued by
company. According to law, existing shareholders have first priority to purchase
additional shares on pro rata basis before the others. Ex. If company has 10,00,000
34. Propotion
35. No obligation
36. Safety to the lenders
37. Right to active participation</li></li></ul><li>retained earnings<br />instead
of disrtibuting the entire profits to the <br />shareholers, company retains some
profits for <br />the purpose of-<br />accumulations of earnings<br />investment
in fixed assets<br />to meet working capital needs<br />
38. Merits of ploughing back of profits<br />to the company-<br
/><ul><li>economical
39. Efficiency and productivity
40. Confidence of shareholders
41. Enhances creditworthyness
42. Less financial risk
43. Repayments of debentures and term loans</li></li></ul><li><ul><li>reduces
the reliance
44. Helps expansion and diversification
45. Helps automation and modernisation
46. Used to meet working capital needs
47. Follows a stable dividend policy
48. Freedom to take their own decisions</li></li></ul><li>to the
shareholders<br /><ul><li>appreciation in share values
49. Bonus shares
50. Regular dividends
51. Security value</li></ul>to the society<br /><ul><li>increases capital
formation
52. Helps speedy development
53. Benefits to the consumers
54. Social welfare activities</li></li></ul><li>demerits of ploghing back of profits<br /><ul><li>danger of manipulation