What is the difference between “Equity” and “share” in a share market?
A very nice question. Thank you.
A share is a unit of the share capital of a company. Practically a company can have two types of share capital, namely:
- Equity Share Capital
- Preference Share Capital
Preference share have a priority on payment of dividends and repayment of principal over equity share capital. Even though this looks like an attractive feature, the dividends are pre-specified and limited. Again at the time of liquidation they are entitled to get only the face value of the share and are not entitled to participate in the surplus available after discharging all obligations.
Equity shares on the other hand are more risky and therefore are attached with potentially greater rewards.
If a company has both equity and preference share capital, then there will be two kinds of shares - equity and preference.
So, a share is more a generic term or a mother term, equity and preference shares being its children.
In the world of stocks the word equity is used to represent equity shares.
What are generally traded on the stock exchanges are mostly equity shares only.
With Best Regards