Question

Equity shareholders are priority claimant​

Answer 1

Equity Shares

Equity shares are also known as ordinary shares. They are the form of fractional or part ownership in which the shareholder, as a fractional owner, takes the maximum business risk. The holders of Equity shares are members of the company and have voting rights. Equity shares are the vital source for raising long-term capital.

Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds. They are the foundation for the creation of a company.

Equity shareholders are paid on the basis of earnings of the company and do not get a fixed dividend. They are referred to as ‘residual owners’. They receive what is left after all other claims on the company’s income and assets have been settled. Through their right to vote, these shareholders have a right to participate in the management of the company.

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.
Equity capital provides creditworthiness to the company and confidence to prospective loan providers.
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
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Answer 2

Equity shareholders are the very foundation of an enterprise.

• They are the only ones who enjoy voting rights in a company.
• They get paid a dividend based on the company's profit for the year and they may or may not get a dividend in case of a loss.
• In case of excess profits, they are given the top priority for all the residual profits after all other claims have been settled.
• Thus they are also referred to as "Priority Claimants" or "Residual owners".