Difference Between Equity and Shares

The key difference between equity and shares is that equity is the sign of ownership in any business entity, implying that somebody has ownership rights in the year-marked entity. Therefore, equity is not allowed to trade freely in the market. In contrast, a share is a portion of the equity measured in terms of number, value, and percentage in that entity and can be easily traded in the market through stock exchanges.

The corporate world is about owning the equity and the quantum of the shares directly or indirectly. The holding of equity determines the ownership and managerial control of the shareholder.

What is Equity?

EquityEquityEquity refers to investor’s ownership of a company representing the amount they would receive after liquidating assets and paying off the liabilities and debts. It is the difference between the assets and liabilities shown on a company’s balance sheet.read more means the ownership stake in the company. In layman’s terms, it means ownership capital or net worthNet WorthThe company’s net worth can be calculated using two methods: the first is to subtract total liabilities from total assets, and the second is to add the company’s share capital (both equity and preference) as well as reserves and surplus.read more after repayment of all the debtsDebtsDebt is the practice of borrowing a tangible item, primarily money by an individual, business, or government, from another person, financial institution, or state.read more. Equity investments are generally bought with the expectation of enjoying the price appreciation and grasping the opportunity to enjoy the increase in value. It provides the cushion of a benefit of ownership and its utility in day-to-day life.

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What is Shares?

Shares are the unit of the company’s capitalShares Are The Unit Of The Company’s CapitalShare capital refers to the funds raised by an organization by issuing the company’s initial public offerings, common shares or preference stocks to the public. It appears as the owner’s or shareholders’ equity on the corporate balance sheet’s liability side.read more or other entity. One can get ownership of the company by its shares. Therefore, shares are pieces of money freely tradeable in the stock exchangeStock ExchangeStock exchange refers to a market that facilitates the buying and selling of listed securities such as public company stocks, exchange-traded funds, debt instruments, options, etc., as per the standard regulations and guidelines—for instance, NYSE and NASDAQ.read more market. Moreover, the holding of shares determines the proportion of equity held by any individual directly or indirectly, allowing investors to keep the investment in any entity for the long and short term. Thus, share contracts are easily tradable and can get squared off in the stock exchange.

Let us take an example: –

Equity vs. Shares Infographics

Key Differences Between Equity and Shares

  • Equity is the ownership stake in the entity or other valuable business component, while shares are the measurement of the ownership proportion of the individual in that business component.Equity will be available in all the business structures, including proprietorship or partnership, or corporate business structure, while shares will be available only in the corporate systems.Equity is generally not freely tradable in the market as it directly affects the holding of the business entity. At the same time, shares are easily tradable through the recognized stock exchange.Equity includes shares, stocks, and other ownership capital, while the company shares have only equity share capital and preference share capital.Equity investments are generally riskier as the person holds the ownership interest in the entity, which will keep them open to all the risks the entity faces. Generally, they are unlimitedly liable for their interest. In contrast, share investment is comparatively less risky as they are only liable up to the subscribed capital in the entity. Hence, they have liability only up to the face value of the investment.Generally, equity investments are for the long termInvestments Are For The Long TermLong Term Investments are financial instruments such as stocks, bonds, cash, or real estate assets that a company intends to hold for more than 365 days in order to maximize profits and are reported on the asset side of the balance sheet under the heading non-current assets.read more, while share investments are for the short term.The primary aim of equity investorsEquity InvestorsAn equity investor is that person or entity who contributes a certain sum to public or private companies for a specific period to obtain financial gains in the form of capital appreciation, dividend payouts, stock value appraisal, etc.read more is to profit from investments and appreciate their value, while share investors intend to enjoy short-term price movement.Equity is a broader term as compared to shares.Equity instrument holders do not always have the right to receive dividendsDividendsDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more, while shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company’s total shares.read more are always entitled to dividends.

Comparative Table

Conclusion

In general, people do use equity and shares interchangeably. But fundamentally, there is a difference between both the terms.

Equity investments are the primary investments that help the entity raising money and give investors appreciation in their investment values. In contrast, share investments are made by the trader in the stock market. Their main aim is to speculate and to earn short-term price gain. Equity components involve the shares, stocks, reserves, and own funds. Hence, equity is a much broader term while shares are part of equity, and hence it is the part of the same.

This article is a guide to Equity vs. Shares. We also discuss the top differences between equity and shares with infographics and a comparison table. You may also have a look at the following articles: – –

  • Equity Investment ExamplesLiability vs DebtShares vs DebenturesDifferences Between Shareholder Equity and Net Worth