Question

ordinary shares represents a normal equity ownership in a company. these shares allow the investors to vote to receive dividend and to receive distribution on the winding up of a COMPANY. ORDINARY SHARES ARE ALSO KNOWN AS EQUITY SHARES OR COMMON STOCK. THE HOLDERS OF THESE SHARES ARE REAL OWNER OF THE COMPANY.THEY HAVE POWER TO APPOINT THE BOARD OF DIRECTORS, AUDITORS. ORDINARY SHARES ARE CONSIDERED RISKIER THAN PREFERRED SHARES BECAUSE PREFERED SHARES GET WHILE MAKING PAYMENT IN THE TIMEW OF LIQUIDATION OR DIVIDENT PAYMENT.

TWO ADVANATGES

1 ISSUING ORDINARY SHARES DOESNOT NEED ANY SECRITY OR MORTGAGE.

2

COMPANY HAS NO OBLIGATION REPAYMENTS TO ORDINARY SHAREHOLDERS UNLIKE DEBT OR PREFERENCE SHAREHOLDERS.

3EQUITY SHARES DO NOT CREATE ANY OBLIGATION TO PAY A FIXED RATE OF DIVIDEND.

TWO DISADVANTAGES

1 EQUITY SHARES INVESTMENT IS A RISKY INVESTMENT HENCE THEY EXPECT REQUIRE HIGHER RATE OF RETURN.

IT WILL BE TIME CONSUMING TO ISSUE SHARES BECAUSE THE COMPANY WILL HAVE TO PREPARE THE NECESSARY DOCUMENTS, ADVERTISE AND CARRY OUT THE SHARE ISSUE IF IT IS TO BE SUCCESSFULL.

Answer 1

equity shares are also known as ordinary shares or common stocks . ordinary shares are issued first time in the primary market through IPO -Initial public offering process . ordinary share holders are also considered as the owner of the company because they have the right to voting and they can take decision in various important decision of the company .ordinary shares has more right and ownership in the form but they are more riskier than preference share .because at the time of liqudation of the firm first payment should be made to prefrence share holder .

There are some advantages and disadvantages of ordinary shares holder ;

Issuing ordinary shares doesnot need any security or mortgage - Issuing of ordinary shares is a formal process . ordinary shares issued through IPO process and doesnot need and mortgage .

COMPANY HAS NO OBLIGATION REPAYMENTS TO ORDINARY SHAREHOLDERS UNLIKE DEBT OR PREFERENCE SHAREHOLDERS. - This is the risk for the ordinary shares holder and benifit for the firm because at the time of insolvency ordinary share holder are paid at the last and company has no oblogation for the ordinary shares holders .

EQUITY SHARES INVESTMENT IS A RISKY INVESTMENT HENCE THEY EXPECT REQUIRE HIGHER RATE OF RETURN. - equity shares are risky for the investment so the equity shareholder are expected higher rate of return.

IT WILL BE TIME CONSUMING TO ISSUE SHARES BECAUSE THE COMPANY WILL HAVE TO PREPARE THE NECESSARY DOCUMENTS, ADVERTISE AND CARRY OUT THE SHARE ISSUE IF IT IS TO BE SUCCESSFULL. - issuing of ordinary shares is a lenghty and time consuming process and for issuing the ordinary shares companies have to perform various task like red heiring prospects