Characteristics of Equity

The following are the main features of equity

Limited liability: The liability of a shareholder is limited to the amount he invested in a company. In case the company goes bankrupt his personal assets can’t be claimed against the losses made by the company.

Profit sharing: Investors enjoy unlimited participation in the earnings of the firm. Theoretically there is no limit to the returns, which an equity investor can get i.e. if the company earns multifold profit and wants to distribute it as dividend. Of course certainly there is a risk of non-functioning/ less (or no) profitability of the company in which case the share price goes down and dividend may not be paid out.

Highly liquid: Equity stocks are generally highly liquid instruments, which can be bought and sold easily in the equity markets. Ownership stake in the company changes with every buy and sell. An investor can acquire ownership and sell off his ownership quite easily whenever he wishes to do so.

Corporate control: Equity stocks come with certain rights including the voting rights to which the investors are entitled.
 

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November 22, 2008 | Filed Under Stocks 

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