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Equity capital

Traditionally, this refers to that part of the issued share capital of a company held by those wlio take the greatest risk and are consequently entitled to all profits and reserves remaining after the contributors of fixed interest or fixed dividend capital have been paid their due. Generally speaking, equity capital is that owned by holders of ordinary shares, though for purposes of certain provisions in the 1980 Companics Act (e.g. pre-emption rights) it also includes holders of participating preference includes holders of participating preference an undetermined stake in company profits.

It is customary for equity shareholders. being the true owners of the company in the sense of being the ultimate risk takers, to make all decisions on company policy r, through the agency of the board of directors which they appoint. Although this is the supposed right of the holders of the equity, it is frequently flaunted by the practice of disenfranchisement contained in the creation of what are usually known as ‘a’ ordinary shares, which though fully entitled to profit carry no votes. This type of ordinary share capital is not popular with the Stock Exchange but is often created ‘ m situations where control of the company through the board of directors is wanted by the original promoters, who are confident of profitability but wish to keep a tight rein on company policy. It was particularly prevalent among the independent television companics that grew up under the I.B.A.

Reference: The Penguin Business Dictionary, 3rd edt.