Equity shares represent an ownership position in a corporation. It a residual claim, in the
sense that creditors and preference shareholders must be paid before shareholders can
receive any payment. In the event of liquidation, equity shareholders are entitled to
assets remaining only after all prior claimants have been satisfied. Thus the risk is
highest with equity shares and so must be its expected return. When investors buy equity
shares, they receive certificates of ownership as proof of their being part owners of the
company which states the number of shares purchased and their value. As a unit of
ownership, equity shares typically carries voting rights that can be exercised in corporate
decisions. Preferred stock differs from common stock in that it typically does not carry
voting rights but is legally entitled to receive a certain level of dividend payments before
any dividends can be issued to other shareholders. |