## Equity Share Capital
### What is it?
Equity share capital is raised by public companies through issuance of ordinary shares to promoters or the public. Holders are called equity shareholders — the true owners of the company.
### Key Features
| Feature | Detail |
|---|---|
| Permanent Capital | Not redeemable; remains with the company unless liquidated |
| Ownership & Control | Shareholders are real owners; exercise control through voting rights |
| Highest Risk Bearers | Paid last in liquidation, after all liabilities |
| Dividend Entitlement | Paid after all obligations (interest + preference dividend); not a legal obligation |
| Costliest Source | High cost due to high return expectations (risk premium demanded by investors) |
### Types of Equity Issues
- New Issue (IPO) — fresh public offering
- Rights Issue — offered to existing shareholders proportionally
- Bonus Shares — issued free to existing shareholders from reserves
- Sweat Equity — issued to employees/directors for non-cash contributions
### Advantages
1. Permanent Finance — no redemption liability, no pressure on cash flows
2. Improves Financial Base — enables raising more debt (improves borrowing capacity)
3. Dividend Flexibility — no legal obligation to pay dividend in loss years
4. Further Capital Raising — rights issue possible without fresh public issue
### Disadvantages
1. Uncertain Returns — variable dividend makes it risky for investors
2. Dilution of EPS — new issues reduce Earnings Per Share unless profits increase proportionally
3. Dilution of Control — new shares reduce the percentage control of existing shareholders