Here’s All You Should Know About Equity Share Capital
Equity market & equity share capital are two diverse concepts connected to the ownership of a company. Equity share capital is the amount of capital a company raises by issuing shares to its shareholders. On the other hand, the equity market is the market where these shares are purchased and sold.
Now let’s begin with understanding what equity share capital is. Once we have an overview, we shall then take a deep dive into this concept.
Table of Content
What are Equity Shares?
In India, equity shares—also referred to as regular shares or ordinary shares—represent ownership in a corporation. When a business needs to raise money, it can sell equity shares to potential investors in return for a stake in the business. Among the most popular ways for businesses to raise finance in India is through the sale of equity shares, which are exchanged on stock markets.
Equity shares are a type of ownership in India that confers specific rights on the holder, including the ability to vote at annual general meetings (AGMs) and the right to dividends. A percentage of a company's income is dispersed as dividends to its shareholders, typically in cash form.
The number of dividends given to equity investors is typically decided by the board of directors of the firm and might change on a yearly basis according to the financial performance of the business.
What is Equity Share Capital?
Equity share capital is also referred to simply as share capital. It is the money a firm raises by selling shares. It is the money that investors and business owners contribute to a company's capital and so that they can utilize it to grow or scale up the day-to-day activities of their business.
Why Do Companies Issue Equity Shares?
In order to get fractional ownership of itself, a firm frequently extends an invitation to the general public to purchase its shares. Shareholders have the right to receive dividends as a result of their ownership.
A major privately held corporation typically issues shares for public trading on a stock exchange. However, small as well as big companies initially offer shares to the public at large for the purpose of generating capital.
The equity share capital subsequently raised through the issuance of equity shares is used to the company's business venture. A sizable cash base also aids in improving their credibility in the market. A corporation offers the chance to acquire a share of its profits as well as a piece in its equity when it issues shares for investors to purchase.
Features Of Equity Share Capital in India
In India, equity share capital differs from other forms of capital like debt or preference share capital in a number of important ways. These features also include ownership rights, investment with lower amounts, voting rights, and potential returns.
When you purchase shares in a corporation, you gain a portion of the ownership. You consequently get ownership of the company's assets. Dividends are another option for investors to share in profits. They stand to win if the company eventually turns a profit as a result of a rise in share price.
- Voting Rights
When you buy shares in a company, you get voting rights. As a result, by purchasing a company's shares, you can gain ownership of and control over it. You are welcome to attend everything, including shareholder meetings and important business events.
- Potential Returns
Equity shares offer the potential for gains that outpace inflation. Additionally, investing in options that have the ability to provide returns that outpace inflation is essential given the current state of inflation.
- Investment with Lower Amounts
With only a minimal investment, an aspiring stock market trader can simply get started. When making investments in the stock market, there is no set minimum. Another benefit of stock investment is the freedom to purchase, sell, and keep shares for however long and at what price you like.
Now let’s look at the different types of equity share capitals in India.
Types of Equity Share Capital in India
Here’s a list of the different types of equity share capital in India.
- Bonus shares
The investors receive these shares in the manner of a dividend.
- Paid-up capital
It is a portion of the subscribed capital that the firm uses to invest in its operations.
- Sweat equity shares
Companies give its directors or staff a few shares as an expression of gratitude for an excellent job well done. These securities are referred to as sweat equity shares.
- Right shares
Right shares are the shares which are issued to people when they invest in equity shares. They are provided to protect the ownership of current investors.
- Subscribed share capital
It includes the portion of the issued share capital that the investors have approved and accepted.
- Issued share capital
Issued share capital refers to the shares that a firm issues to its investors.
- Authorized share capital
Authorized share capital is the greatest amount of capital which a specific firm may issue. After obtaining approval from the relevant authority and paying the requisite fees, companies may increase the permitted maximum to authorize shares.
FAQs on equity share capital in India
What is the difference between equity share capital and preference share capital?
Equity share capital is the amount of capital a company raises by issuing shares to its shareholders. On the other hand, the equity market is the market where these shares are purchased and sold.
How is the price of equity shares determined in the stock market?
Equity share prices are influenced by supply and demand in the stock market. It is influenced by a number of things, including the economy, industry developments, and the company's financial success.
What are the risks associated with investing in equity shares?
Equity share investing involves several risks, including market volatility, company risk, or liquidity risk. In the event that the firm performs poorly or other unfavourable circumstances arise, there is also a danger of losing all of the cash invested.
Can equity shares be converted into other forms of capital?
Equity shares cannot be converted into other forms of capital such as debt or preference shares. However, companies may offer to buy back equity shares from shareholders or undertake stock splits to increase the number of outstanding shares.
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