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Types of Equity

Equity shares represent ownership in a company and provide investors voting rights and a claim on the company's assets and profits. There are various types of equity shares such as authorized, issued, subscribed, paid up, rights shares, bonus shares, and sweat equity shares. Equity shares are a primary source of long-term financing for companies and allow investors to share in the company's success while limiting their liability to the amount invested.

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139 views

Types of Equity

Equity shares represent ownership in a company and provide investors voting rights and a claim on the company's assets and profits. There are various types of equity shares such as authorized, issued, subscribed, paid up, rights shares, bonus shares, and sweat equity shares. Equity shares are a primary source of long-term financing for companies and allow investors to share in the company's success while limiting their liability to the amount invested.

Uploaded by

Prasanth
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as TXT, PDF, TXT or read online on Scribd
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Equity Share and its Types

Equity share is a main source of finance for any company giving investors rights
to vote, share profits and claim on assets. Various types of equity capital are
authorized, issued, subscribed, paid up, rights, bonus, sweat equity etc. The v
alue of equity shares are expressed in terms of face value or par value, issue p
rice, book value, market value etc.In the world of financial and investment mana
gement, equity share is a big word frequently used in every next discussion. We ca
ll it stock, ordinary share, or shares, all are one and the same. Explaining equ
ity shares in a page or a bunch of pages is very difficult. Let us still try to
define it in as summarized manner as possible.
Equity share is one of the main sources of finance for any company. Normally, a
company is started with equity shares as its first source of capital from the ow
ners or promoters of that company. After a certain level of growth, more capital
is required for further growth.The company then finds investor in the form of f
riends, relatives, venture capitalists, mutual funds, or any such small group of
investors and issue fresh equity shares to these investors.A point comes where
the company reaches a very big level and requires huge capital investment for bu
siness growth. It then offers its equity share to general public. This is called
Initial Public Offer (IPO). More such issues in future are called Follow on Pub
lic Offer (FPO).
Equity Shares:
They are categorized under long term sources of finance because legally they are
irredeemable in nature. For an investor, these shares are a certificate of owne
rship in the company by virtue of which investors are entitled to share the net
profits and have a residual claim over the assets of the company in the event of
liquidation. Investors have voting rights in the company and their liability to
company is limited to the amount of investment.
Types of Equity Shares:There are various types of equity shares classified based
on various things.

In the financial statements of a company, equity shares are placed in the liabi
lity side of the balance sheet. They are classified into various categories whic
h are as follows:
Authorized Share Capital: It is the maximum amount of capital which can be issue
d by a company. It can be increased from time to time. Some fee is required to b
e paid to legal bodies accompanied with some formalities.
Issued Share Capital: It is that part of authorized capital which is offered to
investors.
Subscribed Share Capital: It is that part of Issued capital which is accepted an
d agreed by the investor.
Paid Up Capital: It is the part of subscribed capital, the amount for which is p
aid by the investor. Normally, all companies accept complete money in one shot a
nd therefore issued, subscribed and paid capital becomes one and the same. Conce
ptually, paid up capital is the amount of money which is actually invested in th
e business.
There are other types of equity shares discussed below:
Rights Share: These are the shares issued to the existing shareholders of a comp
any. Such kind of shares is issued to protect the ownership rights of the invest
ors.
Bonus Share: These are the type of shares given by the company to its shareholde
rs as a dividend.
Sweat Equity Share: These shares are issued to exceptional employees or director
s of the company for their exceptional job in terms of providing know-how or int

ellectual property rights to the company.

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