What is Equity Shares?

Equity shares, commonly referred to as ordinary share also represents the form of fractional 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 the members of the company and have voting rights. A company may issue shares with differential rights as to voting, payment of dividends etc.

Equity capital and further issues of equity capital by a company are generally based on the condition that they will rank pari passu along with the earlier issued share capital in all respects. However, as regards divided declared by the company such as additional capital shall be entitled to dividend rotatably for the period commencing from the date of issue to the last day of the accounting year, unless otherwise specified in the articles or in the terms of the issue.

Important Characteristics of Equity Shares are given below:

  • Equity shares, other than non voting shares, have voting right at all general meeting of the company. These votes have the affect of the Controlling the Management of the company.
  • Equity shares have the rights to share the profit of the company in the form of divided (cash) and bonus shares. However even equity shareholders cannot demand declaration of dividend by the company which is left to the discretion of the Board of Directors.
  • When the company is wound up, payment towards the equity share capital will be made to the respective shareholders only after payment of the claims of all the creditors and the preference share capital.
  • Equity share holders enjoy different rights as members such as :
  1. Right of pre-emption in the matter of fresh issue of capital.
  • Right to apply to the courts to set aside variations of their rights to their detriment.
  1. Right to receive a copy of the statutory report before the holding of the statutory meeting by public companies.
  • Right to apply to the Central Government to call for the annual general meeting, if the company fails to call such a meeting.
  1. Right to apply company law board for calling for an extra-ordinary general meeting of the company.
  2. Right to receive annual accounts along with the auditor’s report, director’s report and other information.

Equity shareholders, other than non voting shares are entitled to voting rights in all matters, whereas preference shareholders are entitled to voting rights if the assured dividend to which they are entitled has been in arrears for a specified period. In the normal course where there is no divided in arrears to be paid to them they have no voting rights except in a class meeting convened for preference shareholders for specific purposes.

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Difference between Equity Shares and Bonds