An lnsLrumenL LhaL slgnlfles an ownershlp poslLlon (called equlLy) ln a corporaLlon and represenLs a

clalm on lLs proporLlonal share ln Lhe corporaLlons asseLs and proflLs Cwnershlp ln Lhe company ls
deLermlned by Lhe number of shares a person owns dlvlded by Lhe LoLal number of shares ouLsLandlng
lor example lf a company has 1000 shares of sLock ouLsLandlng and a person owns 30 of Lhem Lhen
he/she owns 3 of Lhe company MosL sLock also provldes voLlng rlghLs whlch glve shareholders a
proporLlonal voLe ln cerLaln corporaLe declslons Cnly a cerLaln Lype of company called a corporaLlon has
sLock oLher Lypes of companles such as sole proprleLorshlps and llmlLed parLnershlps do noL lssue sLock
also called equlLy or sLock or corporaLe sLock

LCul1? SPA8L

LCul1? SPA8L ls a a share or class of shares wheLher or noL Lhe share carrles voLlng rlghLs b any
warranLs opLlons or rlghLs enLlLllng Lhelr holders Lo purchase or acqulre Lhe shares referred Lo under (a)
or c oLher prescrlbed securlLles An equlLy share ls a perpeLual llablllLy because lL slgnlfles an owners
legal demand upon Lhe asseLs of Lhe enLlLy ln whlch Lhe equlLy share lf held
ln accounLlng and flnance equlLy ls Lhe resldual clalm or lnLeresL of Lhe mosL [unlor class of lnvesLors ln
asseLs afLer all llablllLles are pald lf llablllLy exceeds asseLs negaLlve equlLy exlsLs ln an accounLlng
conLexL Shareholders equlLy (or sLockholders equlLy shareholders funds shareholders caplLal or
slmllar Lerms) represenLs Lhe remalnlng lnLeresL ln asseLs of a company spread among lndlvldual
shareholders of common or preferred sLock

AL Lhe sLarL of a buslness owners puL some fundlng lnLo Lhe buslness Lo flnance operaLlons 1hls creaLes
a llablllLy on Lhe buslness ln Lhe shape of caplLal as Lhe buslness ls a separaLe enLlLy from lLs owners
8uslnesses can be consldered for accounLlng purposes sums of llablllLles and asseLs Lhls ls Lhe
accounLlng equaLlon AfLer llablllLles have been accounLed for Lhe poslLlve remalnder ls deemed Lhe
owners lnLeresL ln Lhe buslness

1hls deflnlLlon ls helpful ln undersLandlng Lhe llquldaLlon process ln case of bankrupLcy AL flrsL all Lhe
secured credlLors are pald agalnsL proceeds from asseLs AfLerward a serles of credlLors ranked ln
prlorlLy sequence have Lhe nexL clalm/rlghL on Lhe resldual proceeds Cwnershlp equlLy ls Lhe lasL or
resldual clalm agalnsL asseLs pald only afLer all oLher credlLors are pald ln such cases where even
credlLors could noL geL enough money Lo pay Lhelr bllls noLhlng ls lefL over Lo relmburse owners equlLy
1hus owners equlLy ls reduced Lo zero Cwnershlp equlLy ls also known as rlsk caplLal or llable caplLal
An equlLy lnvesLmenL generally refers Lo Lhe buylng and holdlng of shares of sLock on a sLock markeL by
lndlvlduals and flrms ln anLlclpaLlon of lncome from dlvldends and caplLal galns as Lhe value of Lhe sLock
rlses lL may also refer Lo Lhe acqulslLlon of equlLy (ownershlp) parLlclpaLlon ln a prlvaLe (unllsLed)
company or a sLarLup company When Lhe lnvesLmenL ls ln lnfanL companles lL ls referred Lo as venLure
caplLal lnvesLlng and ls generally regarded as a hlgher rlsk Lhan lnvesLmenL ln llsLed golngconcern
slLuaLlons

1he equlLles held by prlvaLe lndlvlduals are ofLen held as muLual funds or as oLher forms of collecLlve
lnvesLmenL scheme many of whlch have quoLed prlces LhaL are llsLed ln flnanclal newspapers or
magazlnes Lhe muLual funds are Lyplcally managed by promlnenL fund managemenL flrms such as
Schroders lldellLy lnvesLmenLs or 1he vanguard Croup Such holdlngs allow lndlvldual lnvesLors Lo
obLaln Lhe dlverslflcaLlon of Lhe fund(s) and Lo obLaln Lhe sklll of Lhe professlonal fund managers ln
charge of Lhe fund(s) An alLernaLlve whlch ls usually employed by large prlvaLe lnvesLors and penslon
funds ls Lo hold shares dlrecLly ln Lhe lnsLlLuLlonal envlronmenL many cllenLs who own porLfollos have
whaL are called segregaLed funds as opposed Lo or ln addlLlon Lo Lhe pooled muLual fund alLernaLlves

A calculaLlon can be made Lo assess wheLher an equlLy ls over or underprlced compared wlLh a long
Lerm governmenL bond 1hls ls called Lhe ?leld Cap or ?leld 8aLlo lL ls Lhe raLlo of Lhe dlvldend yleld of
an equlLy and LhaL of Lhe longLerm bond