A Brief On The Advantages And Disadvantages of Equity Sharing

Equity shares which are also referred to as the ordinary shares allow the investors to have access to the basic rights and a share in the company where they have the voting right along with the limited control over the working of the company.  The dividend rates of these shares largely depend upon the profit made by the company. There are times when the shareholders are offered a high rate of dividend or at times nothing. It is somewhat riskier than preference shareholding.

Here is the list of advantages of equity sharing. Read further to know more:

Dividend

A shareholder is bound to receive a dividend from the company and happens to be one of the major sources of investment.

Capital Gain

These include the profit which is made during the rise in market price of the share.

Limited Liability

The liability associated with the shareholder is mostly restricted to the extent of the investment that is made by them. If in unforeseen circumstances, the company goes into losses, then the share of the loss of the invested money is certainly not associated with the investor.

Freedom to exercise control

When a shareholder invests in a company, they tend to get an ownership in it and can exercise the voting rights within the premises.

Claim the assets and income

An equity shareholder is also the owner of the company and happens to own its assets. As a result of this, they receive the income in the form of dividend and the rest of the investment is given back to the company.

Access to bonus shares

There are times when a company decides to distribute bonus shares among the investors which are also considered as a dividend. These are basically free shares which are given to the investors which are sometimes in the form of dividends.

Liquidity

The shares of a corporate organization which are listed on the stock exchange platform come with the advantage of liquidity.

Splitting of the stock

Splitting of the stock into two equal parts help in reducing the price of every share which in return increases its readability. This particular property is useful when the stock split leads to the liquidity among shares.

On the flip side, here are some of the disadvantages associated with the equity shares. Read further to know more about them:

VARIATION IN THE MARKET PRICE

There is a lot of variation in the equity share market price and there is a lot of risks associated due to the volatile nature of the market. The investor has no control over the gain or loss and at times it can prove to be difficult to book profits from the market.

THE INVESTOR HAS LIMITED CONTROL

An equity investor holds a little value as a shareholder in the company which rules out their possibility of making an impact on the company through the voting rights.

RESIDUAL CLAIM

An equity shareholder happens to have a residual claim over the assets as well as the income.

HIGH RISK

The equity share is comparatively riskier than other types of investments like debts. There is no surety associated with the invested money and it largely depends on the current status of the market.

UNCONTROLLABLE DIVIDEND

The nature of the dividend remains uncontrolled by the shareholder and is mostly the responsibility of the company management to decide upon the amount of dividend that needs to be distributed.

The points listed above eventually make for the advantages and disadvantages of equity sharing. Always keep these tips in mind before you started investing in the equity shares.

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