## Equity Share Capital
### Definition
Raised by public companies through issuance of ordinary shares to promoters or the public. Holders are called equity shareholders — the real owners of the company.
### Key Features
| Feature | Detail |
|---|---|
| Permanent Capital | Not redeemable; stays with company until liquidation |
| Ownership & Control | Voting rights; shareholders elect directors and govern management |
| Highest Risk | Paid last in liquidation — after all creditors and preference shareholders |
| Dividend | Paid after all obligations; not guaranteed; an appropriation (not a charge) against profits |
| Costliest Source | High expected return demanded due to high risk (risk premium) |
### Types of Equity Issues
- IPO (Initial Public Offer) — fresh issue to public
- Rights Issue — offered to existing shareholders
- Bonus Shares — capitalisation of reserves; no cash inflow
- Sweat Equity — issued to employees/directors for non-cash contribution
### Advantages
1. Permanent finance — no redemption pressure on cash flows
2. Improves financial base — larger equity → better borrowing capacity
3. Dividend flexibility — no legal obligation to pay in loss years
4. Further capital possible via rights issue without fresh public offer
### Disadvantages
1. Uncertain returns — variable dividend makes it risky for investors
2. EPS dilution — new shares reduce earnings per share unless profits rise proportionally
3. Control dilution — new shareholders reduce existing owners' percentage of control