Equity
Equity is a share in the ownership of a company. It represents a claim on the
company''s assets and earnings. As you acquire more stock, your ownership stake
in the company increases. The terms share, equity and stock mean the same thing
and can be used interchangeably.
Holding a company''s stock means that you are one of the many owners
(shareholders) of a company, and, as such, you have a claim (to the extent of
your holding) to everything the company owns. Yes, this means that technically,
you own a portion of every piece of furniture; every trademark; every contract,
etc. of the company.
As an owner, you are entitled to your share of the company''s earnings as well
as any voting rights attached to the stock.
Another extremely important feature of equity is its limited liability, which
means that, as a part-owner of the company, you are not personally liable if the
company is not able to pay its debts. In case of other entities such as
partnerships, if the partnership goes bankrupt, the partners are personally
liable towards the creditors/lenders and they may have to sell off their
personal assets like their house, car, furniture, etc., to make good the loss.
In case of holding equity shares, the maximum value you can lose is the value of
your investment.
Even if a company of which you are a shareholder goes bankrupt, you can never
lose your personal assets.
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