Question

…………. capital provides credit worthiness to the company and confidence to prospective loan
providers.
(a) Equity (b) Preference
(c) Trade credit (d) Loan from commercial bank

Answer 1

Equity capital provides credit worthiness to the company and confidence to prospective loan providers.

• Equity capital is also called as residual capital. This means that shareholders have last right on the assets of a company.

Answer 2

Equity capital provides credit worthiness to the company and confidence to prospective loan  providers.

Explanation:

• Equity capital provides creditworthiness to the company and confidence to prospective loan providers.

• Equity capital is the foundation of the capital of a company. It stands last in the list of claims and it provides a cushion for creditors.

• Investors who are willing to take a bigger risk for higher returns prefer equity shares.

• There is no burden on the company, as payment of dividend to the equity shareholders is not compulsory.

• Equity issue raises funds without creating any charge on the assets of the company.

• Voting rights of equity shareholders make them have democratic control over the management of the company.