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.
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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 %
Study This Term In
Related 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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