Limitations.

It is true that the equity capital is a reliable source of finance to a company. But it suffers from certain drawbacks, they are:
1. If the company raises all its capital through equity shares, it will not get the benefit of trading on equity. So, the rate of dividend to the equity shareholders will be reduced.
2. Too much dependence on equity shareholders spreads the effective control over a large number of them. It adversely affects the promoters of the company, who lose the chance of retaining effective control over the affairs of the company.
3. Excessive use of equity shares for raising capital may result in overcapitalization, which cannot be cured as they cannot be paid back until the liquidation of the company.
4. Every additional issue of shares first to the existing shareholders under the provisions of the Companies Act leads to concentration of economic power.
5. Equity shares are not attractive to continuous and conservative investors who expect a stable, regular and sufficient income on their investment.