The Capital Markets

CHAPTER 25Equities

David Weisberger

WHAT IS AN EQUITY?

Equity securities, also known as stock or shares, along with bonds are one of the two primary means for corporations to raise additional capital. Unlike bonds, however, stocks do not represent a debt that needs to be repaid. Rather, equity securities represent a defined ownership interest, or a specific claim against earnings of either a corporation or a fund that holds financial assets. There are several types of equity securities, all of which represent a defined interest in the issuing company and are perpetual: There is no predefined date where they mature or cease to exist.

TYPES OF EQUITIES

Equity security types are defined by the nature of the issuing company and the particular rights that are assigned to the individual securities. The following sections describe the primary types of equities: common stock, preferred shares, depository receipts, and investment companies (mutual funds).

Common Stock

The most basic form of equity is called common stock or ordinary shares. Common stock usually has specifically defined voting rights attached to ownership that allow stockholders to cast votes for the company's board of directors as well as for or against changes to the corporate charter.

Some companies issue multiple classes of common stock with different voting rights. For example, Alphabet Inc., the parent company Google, has three share classes:

1. Class A, ticker GOOG, which has one vote per share
2. Class B, no ticker, ...