1. Permanent capital, since ordinary shares are not redeemable, the company has
no liability for cash outflow associated with its redemption. It is a permanent
capital and available for use as long as the company goes.
2. Borrowing base, the equity capital increases the company's financial base and
thus its borrowing limit. By issuing ordinary shares, the company increases its
financial capability; it can borrow when it needs additional funds.
3. Dividend payment discretion, a company is not legally obliged to pay dividend in
times of financial difficulties, it can reduce or suspend payment of dividend, thus
it can avoid cash outflow associated with ordinary shares.
4. In case there are good profits, the company pays dividend to the equity
shareholders at a higher rate.
5. Equity shares can be easily sold in the stock market.
6. The value of equity shares goes up in the stock market with increase in profits of
the concern.
7. Equity shareholders have greater say in the management of a company as they
are conferred voting rights by the Articles of Association.
NatalieR answered the question on February 9, 2022 at 07:49