Disadvantages of raising funds by issue of equity shares are:
Apart from the above mentioned advantages, equity capital has some disadvantages to the company when compared with other sources of finance. These are as follows:
(i) The cost of ordinary shares is higher because dividends are not tax deductible and also the floatation costs of such issues are higher.
(ii) Investors find ordinary shares riskier because of uncertain dividend payments and capital gains.
(iii) The issue of new equity shares reduces the earning per share of the existing shareholders until and unless the profits are proportionately increased.
(iv) The issue of new equity shares can also reduce the ownership and control of the existing shareholders.
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