Explain merits and demerits of shares.
Explain merits and demerits of shares.
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Advantages of Shares:
1. Equity shares do not create any obligation to pay a fixed rate of dividend.
2. Shares can be issued without creating any charge over the assets of the company.
3. It is a permanent source of capital and the company has to repay it except under liquidation.
4. Shareholders are the real owners of the company who have the voting rights
5. In the case of profits, shareholders are the real gainers by way of increased dividends and appreciation in the value of shares.
Disadvantages of Shares:
1. If only shares are issued, the company cannot take advantage of trading on equity.
2. As capital cannot be redeemed, there is a danger of overcapitalization.
3. Shareholders can put obstacles for management by manipulation and organizing themselves.
4. During prosperous periods higher dividends have to be paid leading to an increase in the value of shares in the market and it leads to speculation.
5. Investors who desire to invest in safe securities with a fixed income have no attraction for such shares.