Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds. They are the foundation for the creation of a company. … Through their right to vote, these shareholders have a right to participate in the management of the company.
Solution(By Examveda Team)
Equity shareholders are the real owners of the company. Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds.
Both ordinary shares and preference shares give shareholders ownership in a company, but they can be different from each other in some important ways.
6. Non-participating preference shares. As the name suggests, non-participating preference shareholders do not have a share in the extra earnings or surplus assets during the liquidation of a company. This type of share entitles its shareholders to receive only the pre-fixed dividends.
Preference shares—also referred to as preferred shares—are an equity instrument known for giving owners preferential rights in the event of a dividend payment or liquidation by the underlying company.
Since in equity market there is high risk therefore, the equity shareholders are the real bearer of the company because they have a residual share in the liquidation of the company. Whereas, in preference shares, the shareholders have a preference with respect to higher claims on earning and the dividend rate is fixed.
Preference shares are normally, although not always, entitled only to a fixed return by way of both dividends and capital and do not therefore constitute equity share capital although they may do so if the return on dividend or capital is not fixed.