Shares that carry no preferential or special rights in respect of annual dividends and in the repayment of capital at the time of liquidation of the company are called equity shares. These shares carry no preferential rights; therefore, these are also known as common stock or ordinary shares.
Dividend on such shares is payable only when there are profits after the payment of preference dividend. But, the rate of dividend on these shares is not fixed. Board of directors, depending upon the dividend policy as well as the availability of profits after dividend on preference shares, declare dividend. No dividend will be paid on these shares, if there are no profits or insufficient profits in a particular year. The value of these shares in stock exchange fluctuates on the basis of rate of dividend declared. Similarly, these shares are redeemed only after the redemption of preference shares at the time of liquidation of the company.
Equity share holders enjoy full voting rights in all matters of the company. They have right to elect directors and participate in the management and control of the company. They also share residual profits.
