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Equity shares – explained

Equity shares (popularly called
ordinary shares) represent part ownership in a company in which
a shareholder undertakes maximum risk associated with the business. For this reason, holders are called risk holders.

Equity shares do not carry a
fixed rate of dividend, but the
rate is usually decided by directors after prior charges have been made on the profit of loan interest and dividends to preferred shareholders.

As a result, holders receive dividends last after their preferred counterparts. They receive capital repayment last as well after preferred shareholders. Holders vote at company meetings and hence have a say in the management of the company.

Equity share capital can not be redeemed during the life of the company. It is returned only when the company winds up.

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