Equity (Securities)
Equity represents ownership interest in a company, typically in the form of common or preferred stock. Shareholders are owners who share in profits and have voting rights but bear the most risk if the company fails.
Exam Tip
Equity = ownership. Stock holders are LAST in line for assets (after creditors). Common stock has voting rights; preferred usually does not.
What is Equity?
Equity represents ownership in a company. When you buy stock, you become a partial owner with rights to profits (dividends) and voting power, but also accept the risk of loss.
Equity vs. Debt
| Feature | Equity (Stock) | Debt (Bonds) |
|---|---|---|
| Relationship | Owner | Creditor |
| Returns | Dividends (not guaranteed) | Interest (contractual) |
| Voting Rights | Yes (common stock) | No |
| Claim Priority | Last | Before equity |
| Upside Potential | Unlimited | Fixed |
| Risk | Highest | Lower |
Types of Equity Securities
| Type | Features |
|---|---|
| Common Stock | Voting rights, variable dividends |
| Preferred Stock | Fixed dividends, no voting, priority over common |
| Convertible Preferred | Can convert to common stock |
| ADRs | Foreign company shares traded on US exchanges |
Shareholder Rights
- Vote on major decisions (board members, mergers)
- Receive dividends (if declared)
- Inspect books and records
- Residual claim to assets after creditors (in liquidation)
- Preemptive rights (in some cases) to maintain ownership %
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Flashcards on MometrixRelated Terms
Common Stock
Common stock is a security representing ownership in a corporation, giving shareholders voting rights and potential dividends.
Preferred Stock
Preferred stock is a hybrid security with features of both stocks and bonds, offering fixed dividends and priority over common stock in liquidation.
Dividend
A dividend is a distribution of a portion of a company's earnings to shareholders, typically paid quarterly in cash or additional shares.
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