Here are 3 things to keep in mind about burying equities.
1. Redeeming Capital: Those who have purchased equity shares from a company can only make a claim on the company’s value in case of a liquidation event, and that too only after all liabilities have been paid off. The only other way to get a return on investment on equities is to receive dividends, and trade the share when it’s value moves above your purchase price.
2. Voting rights: When an individual purchases equity shares from a company, they become a partial owner with the right to vote at company meetings. Given that most people are buying equities of publicly listed companies with a highly fragmented shareholder base, it is usually left to the Board of Directors to handle as they are the appointed representatives of the shareholders of a company.
3. Limited liability: Ordinary shareholders of a company are not impacted directly by the losses of a company in that they are not responsible for debt obligations and other financial troubles brought by a period of losses. The only impact they will feel is in the depreciation of the value of the shares they hold, which would impact their net worth and their profit-turning prospects.