Explain the advantages of equity shares, as a source of finance.

1.	Explain the advantages of equity shares, as a source of finance.
Answer» Advantages of equity shares are: • Equity shares impose no burden on the company resources because the dividend is payable only at the discretion of the management. • The liability of equity shareholders is limited to the face value of shares subscribed by them. • A company with substantial equity capital commands prestige in the investment market. • Equity shareholders have the pre-emptive right to subscribe to new shares issued by company. • The face value of an equity share is generally low. • The value of investment in equity shares may increase manifold during boom and prosperity of the company-holders of these shares earn capital gains. • Equity shares do not create any charge on the assets of the company. • Shareholders are not required to pay income tax on dividends received from the company.

Answer»

Advantages of equity shares are:

• Equity shares impose no burden on the company resources because the dividend is payable only at the discretion of the management.

• The liability of equity shareholders is limited to the face value of shares subscribed by them.

• A company with substantial equity capital commands prestige in the investment market.

• Equity shareholders have the pre-emptive right to subscribe to new shares issued by company.

• The face value of an equity share is generally low.

• The value of investment in equity shares may increase manifold during boom and prosperity of the company-holders of these shares earn capital gains.

• Equity shares do not create any charge on the assets of the company.

• Shareholders are not required to pay income tax on dividends received from the company.

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