Merits :

(a) Higher returns to shareholders.

(b) No compulsory payment of dividends to shareholders.

(c) Permanent capital source.

(d) Raised without any charge. 

Demerits :

(a) No guarantee of steady income to shareholders.

(b) Raising of funds through equity shares costs more.

(c) Issue of additional equity shares dilutes voting power.

(d) More formalities and procedure for issue.

Detailed Answer : 

Merits of equity shares : 

(a) Equity share capital doesn't create any charge on the assets of the company. 

(b) Voting rights of equity shareholders assure democratic control over management of the company. 

(c) Equity share capital is to be repaid only at the time of winding up of a company and hence it is permanent capital of the business. 

(d) There is no burden on the company in respect of dividend payable to equity shareholders because it is not compulsory to pay dividend. 

Demerits of Equity shares : 

(a) The voting power and earnings of existing equity shareholders is affected by issue of additional equity shares. 

(b) Raising funds through issue of equity shares involves a lot of formalities and a lengthy procedure. 

(c) Since the dividend payable to equity shareholders keeps on fluctuating, investors who want steady income do not prefer them. 

(d) The cost of raising funds through equity shares is generally more as compared to other sources.