corporate law
Equity shares signify ownership in a company and serve as a key method for organizations to secure long-term capital. When investors purchase equity shares, they become equity shareholders, thereby obtaining rights to a portion of the company’s profits, assets, and significant decision-making processes.
Equity shareholders possess partial ownership and typically enjoy voting rights, allowing them to take part in essential corporate decisions.
Dividends are not predetermined; rather, they fluctuate based on the company’s profitability and the decisions made by its board of directors.
While equity shares present the chance for substantial returns through dividends and capital appreciation, they also involve greater risks compared to debt instruments.
Equity shares that are publicly listed can be traded on stock exchanges, providing liquidity and potential capital growth opportunities.
Equity shares are generally irredeemable; however, companies may repurchase shares in accordance with Section 68 of the Companies Act, 2013.
In the event of liquidation, equity shareholders receive repayment only after all debts and preference shares have been satisfied, and only if there are remaining funds.
Certain companies may issue shares with differential voting rights (DVR), subject to regulations established by SEBI and the Companies Act.
Equity shareholders have the ability to vote on critical matters, influencing the company's strategic direction.
Companies may provide bonus shares (additional shares at no extra cost) or rights shares (offering shares at a discount to existing shareholders).
As share prices may increase over time, investors are given the opportunity to sell shares for profit.
Employees may obtain shares through Employee Stock Ownership Plans (ESOPs) or sweat equity, fostering alignment with company objectives and growth.
Companies can engage in share buy-backs, offering liquidity to shareholders prior to potential closures.
The Securities and Exchange Board of India (SEBI) has limited DVR shares to a maximum of 74% of total voting power, permitting issuance only for companies with a robust profit history.
All listed shares are required to be maintained in dematerialized (demat) form to enhance security and facilitate transfers.
Dividends are taxable under the shareholder’s income and are subject to capital gains tax upon sale, with rates varying based on the holding period.
Investors' interests are safeguarded through improved disclosure requirements, e-voting facilities, and grievance redressal processes.
Q: What are the main features of equity shares?
A: The main features include ownership, voting rights, variable dividend, liquidity, and potential for capital appreciation.
Q: How are dividends on equity shares taxed?
A: Dividends are included in the investor’s total income and taxed according to their applicable income tax slab.
Q: What are differential voting rights (DVR) shares?
A: DVR shares possess different voting rights compared to ordinary shares and are regulated by SEBI and the Companies Act.
Q: Can equity shares be redeemed?
A: Generally, equity shares cannot be redeemed, although companies may initiate buy-backs under certain conditions.