Equity shares have a number of features which distinguish it from other securities. Its important features are :
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(i) Right to Income:
As you know, equity shareholders have a claim to the residual income, that is, the income left after paying expenses, interest charges, taxes, preference dividend, if any. Usually, a part of the residual income is distributed in the form of dividend to the shareholders and other part called retained earnings is reinvested in the business. Retained earnings are ultimately benefit the shareholders in the form of firm’s enhanced value and earning power and ultimately increase dividend and capital gain of the shareholders. Thus, dividends benefit the shareholders in the form of immediate cash flows whereas the retained earnings give them benefit in the form of capita] gains but not immediately.
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(ii) Claim on Assets:
In case of liquidation of the company, equity shares are the last ones to be paid. They are paid after the claim of debt-holders and preference shareholders have been satisfied. In case of liquidation due to bad financial state of affairs, the equity shareholders generally remains unpaid
(iii) Right to Control:
Right to control here means the power to take decisions, frame major policies and power to appoint directors. Equity shareholders have the legal power to elect directors on the board and also to replace them if the board fails to protect interest of the shareholders.
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(iv) Voting Rights:
Each equity share carries one vote. Directors are elected in the annual general meeting by the majority votes. Thus, every shareholder can participate in the vital affair of election of directors and cast his vote depending on the number of shares held by him. Shareholders are entitled to vote in person or by proxy,
(v) Limited Liability:
In a company limited by shares, an equity shareholder’s liability is limited to the amount of investment in his respective share. If his shares are fully paid up, he doesn’t have to contribute anything in the event of financial stress or winding up of his company. Whereas in case of a sole-trader concern or a partnership firm, the liability of owner/owners is unlimited which requires them to sell their personal assets and satisfy the claims of creditors in the event of insolvency of these firms