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Asked a question 4 years ago

What are the some benefits and drawbacks of equity share?

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Equity shares are the shares of the companies issued to the public for long term financing. The investors of the equity shares have the right to vote members such as directors, share the profits and claim the assets of the company. As much as there benefits in equity shares, there are disadvantages from company’s perspective.

Advantages of Equity share –

  • As the investors invest for long term, equity share becomes the permanent source of capital to the company.
  • In equity share, it’s not always mandatory to repay interest or investment in initial days. Company can give dividends to investors but if it is in loss, company might skip it. Company can decide how much dividend to be given. This increases the spending flexibility & profit.
  • Equity shares help in lowering the risk of bankruptcy. In case, company suffers a loss or recession, the investors can’t compel to return their investment. They need to wait for the company to be back on the track again. While, in case of debt, company suffers loss & is unable to repay, it suffers bankruptcy.

Disadvantages of Equity share –

  • As much as shares are sold, we lose the control over the company as equity shares come with sharing profit & giving part of control to the investors.
  • It takes a lot of time & efforts to get the investors as they are always looking for a company which is earning a good profit. 
  • The fluctuations in market put the company in ups & downs but one has to constantly keep in mind about the investors. This increases mental stress & pressure.