Question

Explain advantages and limitation of ordinary equity shares​

Answer 1

Benefits of equity share investment are dividend entitlement, capital gains, limited liability, control, claim over income and assets, right shares, bonus shares, liquidity etc. Disadvantages are dividend uncertainty, high risk, fluctuation in market price, limited control, residual claim etc.

Answer 2

Advantages of ordinary equity shares is that ordinary equity shareholders are the company's owners and have the ability to vote when crucial corporate decisions, such electing the board of directors, are being made whereas its limitation is that ordinary equity shares are exposed to market risk and may be impacted by business performance, the state of the economy and other variables outside the control of the shareholder.

• Ordinary equity shares offer investors the possibility of capital appreciation by having the potential to appreciate in value over time. If the business does well, the value of the shares may rise, giving the investor a profit.
• Ordinary equity shares are readily available for purchase and sale on stock exchanges giving investors access to stability and the opportunity to sell their shares at any time should the need arise.
• Regular equity owners may not be able to influence significant decisions and have little control over the day-to-day operations of the company.
• The amount of dividend payments and whether they are made at all depend on the company's success.
•  The price of common stock shares is susceptible to swings in value caused by changes in the market or other variables.

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