What Is Equity Share Capital? Definition, Types, and Formula Explained

Introduction to Equity Share Capital

What is Equity Share Capital?
In every successful company, there is one group that carries the highest risk—and enjoys the highest reward. That group is equity shareholders. Equity share capital is the foundation of business ownership, representing the funds raised by a company through issuing equity shares to investors.

In practical terms, equity share capital shows how much money the owners have invested in the business. Unlike loans, this money is not repayable, making it a permanent and flexible source of finance.

What Are Equities?

Understanding Equities

What are equities? Equities are ownership instruments. When you buy equity, you buy a slice of the company—its assets, profits, and future growth.

Key Characteristics of Equities

• Represent ownership, not lending

• Returns depend on company performance 

• Carry voting rights

• Riskier than debt, but more rewarding

What Are Equity Shares?

Equity Shares Explained

What are Equity Shares? These are ordinary shares issued by a company that give shareholders ownership rights.

Equity Shares and Ownership

Equity shareholders are called residual owners. They are paid last—but they benefit the most when the company grows.

Equity Capital vs Equity Share Capital

Equity Capital

Equity capital includes all ownership funds raised by a company, including equity and preference shares.

Equity Share Capital

Equity share capital is strictly the capital raised through equity shares only, making it the true ownership capital.

Equity Share Capital Definition

Formal Definition

Equity Share Capital Definition:
The capital raised by a company through the issue of equity shares that carry voting rights and ownership interest.

Equity Share Capital Meaning in Simple Terms

It is the money owners put into the business to run, grow, and expand it.

What Is Equity Share Capital?

What is equity share capital?
It is a long-term financing method that aligns investor interests with company success. Shareholders earn returns through dividends and capital appreciation rather than fixed interest.

This makes equity share capital ideal for:

• Startups

• Growing companies

• Businesses with long-term goals

Equity Share Capital Formula

Basic Formula

Equity Share Capital Formula:

Equity Share Capital = Number of Equity Shares × Face Value of Each Share

Example

If 1,00,000 equity shares are issued at a face value of ₹10:

Equity Share Capital = ₹10,00,000

Simple. Transparent. Powerful.

How to Calculate Equity Share Capital

Step-by-Step Method

1. Count issued equity shares

2. Identify face value

3. Multiply both

This method is widely used in balance sheets and company reports.

Features of Equity Share Capital

Key Features

• Permanent source of funds

• Voting and control rights

• No fixed dividend burden

• Ownership participation

• High risk–high return profile

Advantages of Equity Share Capital

Major Benefits

• No compulsory repayment

• Improves financial credibility

• Encourages innovation and expansion

• Attracts long-term investors

Disadvantages of Equity Share Capital

Key Limitations

• Ownership dilution

• Higher cost than debt

• Dividend uncertainty

• Market volatility impact

Types of Equity Share Capital

Overview of Types

Equity share capital exists in multiple forms based on authorization, issue, and payment status.

Authorised Share Capital

The maximum capital a company is legally permitted to issue.

Issued Share Capital

The portion of authorised share capital offered to investors.

Subscribed Share Capital

The part investors agree to purchase.

Paid-Up Capital

The actual money received by the company.

Bonus Shares

Free shares issued from reserves to reward existing shareholders.

Right Shares

Shares offered first to existing shareholders at concessional prices.

Sweat Equity Shares

Shares issued to employees for expertise, skill, or value addition.

Difference Between Equity Share Capital and Preference Share Capital 

Basis	Equity Share Capital	Preference Share Capital
Ownership	Yes	No
Voting Rights	Yes	Limited
Dividend	Variable	Fixed
Risk	Higher	Lower

FAQs on Equity Share Capital

1. What is Equity Share Capital?

It is ownership capital raised by issuing equity shares.

2. What are equity shares?

They represent ownership and control in a company.

3. How to calculate equity share capital?

Multiply total equity shares by face value.

4. What does equity share capital mean?

It means ownership funds invested by shareholders.

5. What are the advantages of equity share capital?

Flexibility, no repayment, long-term stability.

6. What are the types of equity share capital?

Authorised, issued, subscribed, paid-up, bonus, rights, and sweat equity shares.