A company issue equity shares to raise capital at the cost of diluting its ownership. Investors can purchase units of shares to get part ownership of the firm. By purchasing the equity shares, investors will be contributing towards the total capital of the company and becoming its shareholder.
Ordinary Shares: –
Ordinary shares are those shares a company issue to raise funds to meet long-term expenses. Investors get part ownership of the firm. It is to the tune of the number of shares held by then. An ordinary shareholder has voting rights.
Preference Shares: –
Preference equity shares are an assurance of the payment of a cumulative dividend to the investors before ordinary shareholders. On the other hand, shareholders lack the voting and membership rights of a common shareholder.
Preference shares are classified as participating and non-participating. If an investor purchase partipation preference shares, they get a specified amt of profit as well as bonus returns. These benefits are subject to the company’s success in a specific financial year. Non – participating equity shareholder do not get any such benefits. Preference shareholders receive repayment of capital when the company is winding up or discontinuing its business.
Bonus Shares: –
Are a type of equity shares a company issue from its retained earnings. In other words, a company distributes its profit in the form of bonus issue. However, this does not increase the market capitalization of the company as other equity shares do.
Rights shares: –
Right shares are not for everyone. The company issue these shares only for specific premium investors. As a result, The equity stake of such holders increases. The right issue is done at a discounted price. The motive is to raise money to meet financial requirements.
Sweat Equity: –
Directors and employee of a company receive sweat equity shares. They get the shares at a discount for their excellent work in providing intellectual property rights, know-how, or value addition to the company.
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