Question

While presenting a seminar paper on different sources of business finance, your friend Vineeth, pointed out that “ownership capital is the risk capital of the business”. Can you explain why it is called risk capital?

Answer 1

Equity shareholders are the real owners of the company. Equity shareholders will get their dividend only after dividend is paid to preference shareholders. They can claim back their capital only on winding up after discharging all other liabilities of the company. So we can say that ownership capital is the risk capital of the business.