Equity fund means the owner, own funds and finance. Usually their proprietor trough their finance operates scale business such as sole proprietorships and partnerships.
Joint stock companies operate on the basis of equity shares, but their direction differs from shareholders and investors.
Merits of Equity Finance:
(I) Permanent in Nature: Equity finance investment is permanent in character. There isn’t any need to repay it unless liquidation occurs.
Shares once sold remain on the marketplace. If any shareholder wishes to sell those shares he can do this in the stock exchange where company is listed.
However, this will not pose any liquidity problem for the company.
(ii) Solvency: Equity fund increases the solvency of the business. It also aids in increasing the financial standing.
In times of need the share capital can be increased by inviting offers from the public to subscribe for new shares.
This will enable the company to successfully face the fiscal crisis.
(iii) Credit Worthiness: High equity finance increases credit worthiness. A business in which equity fund has high percentage can easily take loan from banks.
In comparison to those companies which are under severe debt burden, no longer stay attractive for investors.
Higher proportion of equity fund means that less money will be necessary for payment of interest on loans and financial expenses; so much of the profit will be distributed among shareholders.
(iv) No Danger of Insolvency: Since there is no borrowed funds so no repayment need to be made in any rigorous lime schedule. This makes the entrepreneur free of financial worries like merger & acquisition and there’s absolutely not any danger of insolvency.
(v) No Interest: No interest is paid to any outsider in case of equity finance. This increases the net income of the company which may be used to expand the scale of operations.
(vi) Increasing Capital: Joint Stock companies can increases both the issued and authorized capital after fulfilling certain legal requirements. So in times of need finance can be raised by selling extra shares.
It would be better to get through more information related to equity financing and capital investment.
(vii) Liquidation: In case of winding up or liquidation there’s no outsiders charge on the assets of the enterprise. All the assets remain with the owner.