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Question
What is meant by Equity Shares?
Solution
- 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.
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