Equity is a share in the ownership of a company. It represents a claim on the company''s assets and earnings. As you acquire more stock, your ownership stake in the company increases. The terms share, equity and stock mean the same thing and can be used interchangeably.
Holding a company''s stock means that you are one of the many owners (shareholders) of a company, and, as such, you have a claim (to the extent of your holding) to everything the company owns. Yes, this means that technically, you own a portion of every piece of furniture; every trademark; every contract, etc. of the company.
As an owner, you are entitled to your share of the company''s earnings as well as any voting rights attached to the stock.
Another extremely important feature of equity is its limited liability, which means that, as a part-owner of the company, you are not personally liable if the company is not able to pay its debts. In case of other entities such as partnerships, if the partnership goes bankrupt, the partners are personally liable towards the creditors/lenders and they may have to sell off their personal assets like their house, car, furniture, etc., to make good the loss. In case of holding equity shares, the maximum value you can lose is the value of your investment.
Even if a company of which you are a shareholder goes bankrupt, you can never lose your personal assets.
Equity Basics
The investor interested in equity securities should first have a firm understanding of what equity is. Equity can be defined as ownership of, or investment in, property. Property may include such things as art, race horses, computer chips, lumber, automobiles or just about anything to which legal ownership may be demonstrated.