Equities, shares and stocks are all names for the individual units that give you a financial interest in a company. The terms are often used in slightly different ways. For example, investors sometimes refer to shares when discussing a single company, shares or stocks when they talk about a small or loose group of companies and equities when they mean more formally defined groups (or when they just want to sound more professional). But those distinctions are not absolute and all three words will often be used interchangeably.
Terms used:
- An equity investor in a company is known as a shareholder. The terms equity holder and stockholder are less common.
- The stockmarket is the name for a market on which shares trade (also known as the share market in a handful of countries, such as Australia).
- The term equity markets is also sometimes used, but most commonly to refer to a group of stockmarkets (for example, European equity markets).
Shareholders are often described as the owners of a company. This is not strictly true: under most systems, companies are separate legal entities whose relationship with their shareholders, managers, employees, creditors and customers are governed by a wide range of regulations and contracts. But owning equities does give you certain rights and control over a company. These rights typically include appointing the board of directors, approving certain actions (for example, the issuance of new shares that may dilute their ownership) and getting a share of any dividends declared by the directors.
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In essence, equities amount to a claim on the assets and accumulated earnings that would be left after paying back liabilities (known as shareholders’ equity). Equities rank below creditors (such as bonds and loans) in priority when being paid, but receive all the excess profits if the business is successful. On average, they are riskier than bonds but should produce higher returns in the long term.
