Question

What is meant by Equity Shares?

Answer 1

• Equity shares do not carry any special or preferential rights in the payment of annual dividends or repayment of capital. The rate of dividend on such shares is not fixed.
• Dividends on equity shares are paid out of the residual profits left after paying interest on debentures and dividends on preference shares.
• Similarly, equity shareholders are paid at the company's winding-up after all debts and preference shareholders have been paid in full. They are entitled to receive what is left after all prior claims have been satisfied.
• Therefore, equity shareholders are the real risk-bearers. But they share in the increasing profits of the company.