It is a source of permanent capital without any commitment of a fixed return to the shareholders. The return on capital depends ultimately on the profitability of business. 2. It facilitates a higher rate of return to be earned with the help of borrowing funds because loans carry a fixed rate of interest.
Preference shares carry a fixed rate of dividend to be paid if there are profits, where as equity shares do not carry a fixed rate of dividend. 2. Issue of Debentures : A debenture is the instrument of certificate issued by a company to acknowledge is debt.
What is the benefit of equity?
The primary benefit of equity investments is the increase in the value of the initial amount invested in the business. You have less risk using equity investment to finance your business because you don’t have to take loans or use debt financing to attain the necessary funds needed for a company’s growth.
The major advantage of investment in equity shares is its ability to increase in value by sharing in the growth of company profits over the long run.
(i) Equity share capital remains permanently with the company. It is returned only when the company is wound up. (ii) Equity shareholders have voting rights and elect the management of the company. (iii) The rate of dividend on equity capital depends upon the availability of surplus funds.
Features of Equity Shares Capital
- Equity share capital remains with the company. It is given back only when the company is closed.
- Equity Shareholders possess voting rights and select the company’s management.
- The dividend rate on the equity capital relies upon the obtainability of the surfeit capital.