- More Equity Share Capital issued means less utilization of trading on equity
- As equity capital cannot be redeemed, there is danger of over capitalization
- Investors desirous of investing in safe securities with fixed income do not go for equity shares
Disadvantages from the Shareholders’ Point of View:
- Equity shareholders get dividend only if there remains any profit after paying debenture interest, tax and preference dividend. Thus, getting dividend on equity shares is uncertain every year.
- Equity shareholders are scattered and unorganized, and hence they are unable to exercise any effective control over the affairs of the company.
- Equity shareholders bear the highest degree of risk of the company.
- Market price of equity shares fluctuate very widely which, in most occasions, erode the value of investment.
- Issue of fresh shares reduces the earnings of existing shareholders.
Disadvantage from the Company’s Point of View:
- Cost of equity is the highest among all the sources of finance.
- Payment of dividend on equity shares is not tax deductible expenditure.
- As compared to other sources of finance, issue of equity shares involves higher floatation expenses of brokerage, underwriting commission, etc.