EQUITY SHARES :
Equity shares, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holder of such shares is the member of the company and has voting rights.
According to explanation (i) to Section 43 of Companies Act, 2013 ‘‘equity share capital’’, with reference to any company limited by shares, means all share capital which is not preference share capital. Section 43 further provides for equity share capital (i) with voting rights, or (ii) with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed.
Equity capital and further issues of equity capital by a company are generally based on the condition that they will rank pari passu along with the earlier issued share capital in all respects. However, as regards dividend declared by the company such additional capital shall be entitled to dividend ratably for the period commencing from the date of issue to the last day of the accounting year, unless otherwise specified in the articles or in the terms of the issue.
Important characteristics of equity shares are given below :
Equity shares, have voting rights at all general meetings of the company. These votes have the affect of the controlling the management of the company.
Equity shares have the right to share the profits of the company in the form of dividend (cash) and bonus shares. However even equity shareholders cannot demand declaration of dividend by the company which is left to the discretion of the Board of Directors.
When the company is wound up, payment towards the equity share capital will be made to the respective shareholders only after payment of the claims of all the creditors and the preference share capital.
Equity share holders enjoy different rights as members under the Companies Act, 2013 such as:
(a) The right to vote on every resolution placed before the company – (Section 47)
(b) The rights to subscribe to shares at the time of further issue of capital by the company (Preemptive Right) – (Section 62)
(c) Right to appoint proxy to attend and vote at the meeting on his behalf – (Section 105)
(d) Right to receive copy of annual accounts of the Company – (Section 136)
(e) Right to receive notice of the meeting of members – (Section 101)
(f) Right to inspection of various statutory registers maintained by the company – (Section 94)
(g) Right to requisition extraordinary general meeting of the company – (Section 100)