Question : What is the main advantage of issuing equity shares for a company?
Option 1: Lower interest payments
Option 2: No obligation to repay
Option 3: Increased voting rights
Option 4: Fixed dividend payments
Correct Answer:
No obligation to repay
Solution : The correct answer is (b) No obligation to repay.
The main advantage of issuing equity shares for a company is that there is no obligation to repay the funds raised through equity issuance. No obligation to repay is the main advantage of issuing equity shares. When a company issues equity shares, it is essentially selling ownership stakes to investors. Unlike debt financing, which requires repayment of the principal amount along with interest, equity financing does not create any contractual obligation to repay the funds raised. Equity investors become long-term shareholders, and the company is not bound to repay the initial investment.
Therefore, the main advantage of issuing equity shares for a company is that it does not create an obligation to repay the funds raised. Equity financing provides a long-term capital base for the company without the burden of repayment or fixed interest payments.
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