What is the Law in your Life?

5 things you need to know about equity share capital in a private limited company:

1.       The term “equity” is often used as shorthand to describe a company’s share capital (as opposed to its debt or loan capital).

2.       However, it may not necessarily be correct to describe all shares in a company as “equity”. The phrase “equity share capital” actually has a statutory definition.

3.       In terms of the Companies Act 2006, “equity share capital” means a company’s issued share capital-but does not include shares which have restricted rights respect of dividends or capital.

4.       Normally, preference shares are only entitled to a fixed return by way of dividends and capital. It follows, therefore, that preference shares are unlikely to form part of a company’s equity share capital.

5.       On the other hand, ordinary shares carry full rights to dividends and to a return of capital. Ordinary shares truly represent a company’s equity share capital.