11th Class Business Studies Sources Of Business Finance Question Bank Sources Of Business Finance (Long)

  • question_answer
    Describe in brief the features of equity shares.


    Ans.     Equity shares are the most important sources of raising long term capital by a company. They represent the ownership of a company and therefore, the capital raised by issue of these shares is called owner's funds. Features of equity shares:
    (a) Voting Rights: They have voting rights and hence they are the owners of the business.
    (b) Participation in Management: Using their voting rights, equity sharesholders get a right to participate in company's management.
    (c) Return: These shareholders do not get a fixed dividend. They get according to the earnings of the company. They receive what is left after all other claims on the company's income and assets have been settled.
    (d) Risk: They enjoy the reward and also bear the risk of ownership. Therefore, it is also called risk capital.
    (e) Permanent Capital: Equity capital serves as permanent capital as it is to be repaid only at the time of liquidation of a company.
    (f) No charge on assets of the company: Funds can be raised though equity issue without creating any charge on the assets of a company. The assets of a company are therefore, free to be mortgaged for the purpose of borrowings, if the need be.
    (g) More Costly: The cost of equity shares is generally more as compared to the cost of raising funds through other sources.

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