Equity Share Capital: Types, Meaning, Risks And Benefits

For running the business smooth and successful, the critical requirement is sustainable capital. At the time of financial problems, such companies prove effective as they have sustainable capital by which they can easily continue the company’s activities. Moreover, the company issues the shares to the common public to raise their capital from the public funds. That capital is called equity share capital. 

What Are Equities? 

One needs to familiarise himself with the equity shares if they don’t understand equity share capital is?

Ownership stake is represented by equity and ordinary shares. Shares sold by a company work as investments. Also, the person holding the shares will get the stake of ownership in the company based on the total amount of shares purchased. 

Also, they have some benefits once they become shareholders:

  • Fair Liquidity: Based on market fluctuations and company revenue generation, share price fluctuates. Based on both, they may even be affected. 
  • Profitability: Capital appreciation is not just a single benefit for shareholders. They also get a fixed rate of dividend based on every month and year.
  • Control on management: With a significant percentage of shareholding, shareholders can also influence the company’s management. 

What Is Equity Share Capital?

When offering shares, the amount raised is called the equity share capital or share capital. It refers to the money that every investor invested in the company’s capital for the growth and expansion of the company. 

Why does the Company Issue The Equity Share Capital?

A company invites the general public by acquiring its shares which refers to earning rational ownership. Once shareholders get the ownership, they can receive a fixed amount of dividends through the company they invested in. 

Usually, private companies with a large market cap will list themselves on the stock exchange and allow the common public to trade in shares of their company. 

Hence generation of capital and expanding the equity base is the most important reason for issuing the shares to the common public. 

The equity share capital is raised through equity shares, and that capital is used in the different company’s ventures or growth.

Hence, investing in any company’s equity, you need to analyze the company’s past data and performance. It would help if you learned about technical and fundamental analysis to explore these things. While without using it, if you invest in any company, it may increase the chances of loss. However, if you want o get basic and technical analysis knowledge, you must visit at Stock Market Institute In Delhi

Different Types of Equity Share Capital 

Various types of equity shares help every company generate equity share capital.

  • Authorized Share Capital: The maximum or highest amount of capital issued by a company is the authorized share capital. Once companies have paid the required fees, they can increase the limit of their authorized shares.
  • Issued Share Capital: Stocks or shares that the company offers to the common public are the issued share capital.
  • Subscribed Share Capital: Comprises part of issued share capital is the subscribed share capital, which every investor should agree upon and accept. 
  • Right Shares: Those types of shares issued to the investors once they invested the money in some individual equity are referred to as the right shares. To protect investors’ ownership, these shares are issued.
  • Sweat Equity Shares: If the employee or the directors perform work well in any company, they will be appreciated by the allotment of shares to them. At them, the shares issued for them are known as sweat equity shares. 
  • Paid Up Capital: Part of subscribed capital is formed by it, invested by the company in their business. 
  • Bonus Shares: In dividends, these shares are issued to the investors. 

Any company can issue its shares through the process of Initial Public Offering (IPO)

Risk Associated With The Equity Share Capital 

Below are some drawbacks which are faced at the time of issuing equity share capital

Risks At The Time of Generating Equity Share Capital 

No Takers

To acquire the share capital company need to invite the common public. Nowadays, investors know how the market works and which kind of shares they should invest in. Before investing, most intelligent investors collect the company’s essential data, like the past performance and returns, and then take the next step forward of investing.

If due for any reason, the requirement of the investors will not match with companies performance. Then they are not willing to invest in that particular company. Hence if there are no buyers left to buy the company’s shares, then that specific company fails to raise the equity share capital from the funds of the common public. 

Insufficient Capital Generation

There are thousands of companies that are available in the stock market. Investors have a choice to diversify their portfolios. Hence a company would not be able to generate more capital is very slim.

Higher Liability

When the company issued the shares at a lower face value, they may gain from the large number of investors they bargained for. In any company with a large number of shares, holders are only proven well for the company when they will manage reasonably. When it can’t be possible to control many shareholders, it increases the burden of the company’s liability. In return, they have the bulk amount of dividend they bargained for. Hence, increasing weakness will become a hassle in the growth of the company’s equity share capital. And for the company, sustainability is proven to be wrong. 

The Bottom Line 

Shareholders can create an equity share capital account that keeps the investments on track, and for such kinds of transactions, they can maintain the ledger. And for those companies that offer the equity share capital, they must keep the equity share capital account, which helps to monitor the growth of companies’ equity share capital. While for the knowledge of equity share capital, you can also join the Stock Market Course In Delhi

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