Companies prefer equity capital because it is less expensive it is true or false
Answers
A company primarily has two ways to increase their overall capital balance -
a) Owned Capital
Owned Capital consists of capital that was raised by the creators of the business as well as capital brought into the business through the means of selling Shares (Equity Shares only).
b) Borrowed Capital
Borrowed Capital is borrowed from the sources like issuing debentures, bonds, taking loans, etc.
Now to come to your actual question,
Equity Share Capital raised is less expensive as the company has to pay dividend only out of the profits declared at that particular year, or previous year or out of capital profits or profits reserved or sometimes even government aid provided for distributing dividend. So, if the company faces losses - they are not liable to pay dividend at that point of time for that year but they can distribute the dividend for both the years, the preceding year or arrangements can surely be made by the Board of Directors to console Shareholders and make them aware of the situation and devise a strategy. When it comes to borrowed capital like debentures or bonds, the company is liable to pay the interest every year on these securities despite the fact whether company faced heavy losses or not, it has to be paid as it is a legal statutory debt of the company. So, to put it short - Equity Capital is surely less expensive for a company.