What are the advantages of issuing equity shares?
There are several merits of issuing equity shares to raise long-term capital. These are :
- Permanent Capital: Equity shareholders provide the permanent funds of a company. There is no fixed commitment to return the money or that a predetermined rate of dividend will be paid.
- No Charge on Fixed Assets: A firm is not obliged to mortgage its assets in order to issue equity shares. The assets remain free for borrowing loans.
- High Credit Standing: The amount of equity share in the capital structure determines the creditworthiness of a company. Creditworthiness is improved when an organization has more equity share capital.
- Huge Funds: By issue of equity shares a company can raise a huge amount of funds because the denomination of equity share is very small. People from all income groups can invest in equity share capital. So a company can mobilize huge funds from investors belonging to different income groups.