Equity shares are the main source of finance of a firm. It is issued to the general public. Equity shareholders do not enjoy any preferential rights with regard to the repayment of capital and dividend. They are entitled to the residual income of the company, but they enjoy the right to control the affairs of the business and all the shareholders collectively are the owners of the company.

Advantages to Company:

1. Long-term and Permanent Capital: It is a good source of long-term finance. A company is not required to pay-back the equity capital during its life-time and so, it is a permanent source of capital.

2. No Fixed Burden: Unlike preference shares, equity shares suppose no fixed burden on the company’s resources, because the dividend on these shares is subject to availability of profits and the intention of the board of directors. They may not get the dividend even when the company has profits. Thus they provide a cushion of safety against unfavourable development.

3. Creditworthiness: Issuance of equity share capital creates no change in the assets of the company. A company can raise further finance on the security’ of its fixed assets.

4. Risk Capital: Equity capital is said to be the risk capital. A company can trade on equity in bad periods on the risk of equity capital.

5. Dividend Policy: A company may follow an elastic and rational dividend policy and may create huge reserves for its developmental programmes.