Merits: 

From Shareholders Point of View: 

• The equity shareholders are the owners of the company. 
• It is suitable for those who want to take risk for higher return. 
• The value of equity shares goes up in the stock market with the increase in profits of the concern. 
• Equity shares can be easily sold in the stock market. 
• The liability is limited to the nominal value of shares. 
• Equity shareholders have a say in the management of a company as they are conferred voting rights.

From Management Point of View: 

• A company can raise capital by issuing equity shares without creating any charge on its fixed assets. 
• The capital raised by issuing equity shares is not required to be paid back during the lifetime of the company. It will be paid back only when the company is winding up. 
• There is no binding on the company to pay dividend on equity shares. The company may declare dividend only if there is enough profits. 
• If a company raises more capital by issuing equity shares, it leads to greater confidence among the creditors.

Demerits:

• As equity capital cannot be redeemed, there is a danger of over capitalisation. 
• The dividend which a shareholder receives is neither fixed nor controllable by him. The management of the company decides how much dividend should be given. 
• Equity share investment is a risky share compared to any other investment. 
• Equity shareholders get dividend only if there remains any profit after paying debenture interest, tax and preference dividend. Thus, getting dividend on equity shares is uncertain every year. 
• Issue of fresh shares reduces the earnings of existing shareholders. 
• Cost of equity is the high when compared to other sources of finance.