{"id":6791,"date":"2021-09-26T16:13:51","date_gmt":"2021-09-26T10:43:51","guid":{"rendered":"https:\/\/scholarsclasses.com\/blog\/?p=6791"},"modified":"2025-10-08T13:17:27","modified_gmt":"2025-10-08T07:47:27","slug":"meaning-of-equity-shares","status":"publish","type":"post","link":"https:\/\/scholarsclasses.com\/blog\/meaning-of-equity-shares\/","title":{"rendered":"Meaning of Equity Shares | Types, Advantages, and Disadvantages"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d87c1fa8b78\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d87c1fa8b78\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/scholarsclasses.com\/blog\/meaning-of-equity-shares\/#Meaning_of_Equity_Shares\" >Meaning of Equity Shares<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/scholarsclasses.com\/blog\/meaning-of-equity-shares\/#Definition_of_Equity_Shares\" >Definition of Equity Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/scholarsclasses.com\/blog\/meaning-of-equity-shares\/#Types_of_Equity_Shares\" >Types of Equity Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/scholarsclasses.com\/blog\/meaning-of-equity-shares\/#Advantages_of_Equity_Shares\" >Advantages of Equity Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/scholarsclasses.com\/blog\/meaning-of-equity-shares\/#Disadvantages_of_Equity_Shares\" >Disadvantages of Equity Shares<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading has-text-align-center\"><span class=\"ez-toc-section\" id=\"Meaning_of_Equity_Shares\"><\/span><strong>Meaning of Equity Shares<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"576\" data-src=\"https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Meaning-of-Equity-Shares-1024x576.jpg\" alt=\"\" class=\"wp-image-6800 lazyload\" title=\"\" data-srcset=\"https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Meaning-of-Equity-Shares-1024x576.jpg 1024w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Meaning-of-Equity-Shares-300x169.jpg 300w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Meaning-of-Equity-Shares-768x432.jpg 768w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Meaning-of-Equity-Shares-1536x864.jpg 1536w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Meaning-of-Equity-Shares-640x360.jpg 640w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Meaning-of-Equity-Shares.jpg 1920w\" data-sizes=\"(max-width: 1024px) 100vw, 1024px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1024px; --smush-placeholder-aspect-ratio: 1024\/576;\" \/><figcaption class=\"wp-element-caption\">Meaning of Equity Shares<\/figcaption><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Definition_of_Equity_Shares\"><\/span><strong>Definition of Equity Shares<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Equity <a href=\"https:\/\/en.wikipedia.org\/wiki\/Share_(finance)\" target=\"_blank\" data-type=\"URL\" data-id=\"https:\/\/en.wikipedia.org\/wiki\/Share_(finance)\" rel=\"noreferrer noopener\">shares<\/a> are also known as <strong>ordinary shares<\/strong>. <strong>Companies Act<\/strong> defines equity shares as \u2018<strong><em>those shares which are not preference shares<\/em><\/strong>\u2019.<\/p>\n\n\n\n<p>The above definition reveals that :<br>a) The equity shares do not enjoy preference for dividend.<br>b) The equity <a href=\"https:\/\/scholarsclasses.com\/blog\/definition-of-shares\/\" target=\"_blank\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/definition-of-shares\/\" rel=\"noreferrer noopener\">shares<\/a> do not have priority for repayment of capital at the time of winding up of the company.<\/p>\n\n\n\n<p>Equity shares are fundamental source of financing business activities. Equity shareholders own the company and bear ultimate risk associated with the ownership. After paying claims of all other investors the remaining funds belong to equity shareholders. <\/p>\n\n\n\n<p>Thus equity shareholders are \u2018<strong>residual claimants\u2019 <\/strong>of the income and assets. Equity shareholders do not carry any fixed commitment of dividend. They are paid dividend at the rate recommended by Board of Directors. If there is no profit, no dividend will be payable. Similarly, if there is less profit, lesser dividend will be paid. Thus the fortune of equity shareholders is tied up with the ups and downs of the company. If the company is successful, they enjoy great financial rewards and if the company fails, the risk falls mainly on them. It is exactly because of this position equity share capital is known as \u2018venture capital\u2019 or \u2018<strong>risk capital<\/strong>\u2019.<\/p>\n\n\n\n<p>The owners of equity shares are real risk-bearers. However, equity shareholders participate in the management of their company. They are invited to attend general meetings. They are allowed to vote on all matters discussed at the general meeting. They elect their representatives to manage the company. Equity shareholders are thus real owners of the company.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/public-deposits-meaning\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/public-deposits-meaning\/\" target=\"_blank\" rel=\"noreferrer noopener\">Public Deposit <\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/gdr-meaning\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/gdr-meaning\/\" target=\"_blank\" rel=\"noreferrer noopener\">Global Depository Receipt (GDR)<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/features-of-shares\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/features-of-shares\/\" target=\"_blank\" rel=\"noreferrer noopener\">Features of Shares<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/meaning-of-equity-shares\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/meaning-of-equity-shares\/\" target=\"_blank\" rel=\"noreferrer noopener\">Meaning of Equity Shares<\/a><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Types_of_Equity_Shares\"><\/span>Types of Equity Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>The equity share can be of two types :<\/strong><\/p>\n\n\n\n<p><strong>a) Equity shares with normal voting rights:<\/strong> <\/p>\n\n\n\n<p>The voting rights of such equity holders are in proportion to their shareholdings.<br><br><strong>b) Equity shares with differential voting rights:<\/strong><\/p>\n\n\n\n<p>Such equity holders shall have varying rights regarding dividend, voting or otherwise in accordance with Rule 4 of Companies (Share Capital and Debentures) Rules 2014. Thus company can issue shares with limited voting rights or no voting rights. They may be entitled to an extra rate of dividend, if any.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_of_Equity_Shares\"><\/span>Advantages of Equity Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The company has no immediate liability to pay it.<\/li>\n\n\n\n<li>No fixed dividend obligation.<\/li>\n\n\n\n<li>Increases creditworthiness of business, ceteris paribus.<\/li>\n\n\n\n<li>No charge created on assets of the business.<\/li>\n\n\n\n<li>Shareholders control the company.<\/li>\n\n\n\n<li>Limited liability of the investors.<\/li>\n\n\n\n<li>High dividends.<\/li>\n\n\n\n<li>No collateral security needed<\/li>\n\n\n\n<li>Increases firm credibility<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Disadvantages_of_Equity_Shares\"><\/span>Disadvantages of Equity Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Equity dividend, not tax-deductible.<\/li>\n\n\n\n<li>High cost of equity issue.<\/li>\n\n\n\n<li>Gradual dilution of shareholder\u2019s control over business.<\/li>\n\n\n\n<li>Manipulation by a few shareholders.<\/li>\n\n\n\n<li>Dividend at the discretion of the Directors.<\/li>\n\n\n\n<li>Very risky investment.<\/li>\n\n\n\n<li>Residual claim on investments.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#46;&#46;&#46;<\/p>\n","protected":false},"author":1,"featured_media":6800,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[10],"tags":[2070],"class_list":["post-6791","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-educational-blogs","tag-meaning-of-equity-shares"],"_links":{"self":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/6791","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/comments?post=6791"}],"version-history":[{"count":7,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/6791\/revisions"}],"predecessor-version":[{"id":39451,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/6791\/revisions\/39451"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media\/6800"}],"wp:attachment":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media?parent=6791"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/categories?post=6791"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/tags?post=6791"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}