Bonds Vs. Stocks – What Is Equity?
What is equity?
A corporation often raises capital by issue shares (equity); such are consider a share in ownership of the corporate. The investors will have rights in the company as an owner depending on the proportion of shares owned in the company from the total shares issued.
Characteristics of equity:
Ownership: equity represents a claim on the assets of the issuing entity.
Dividends: The Company can pay dividends to the shareholders when profit is made; and it also may not pay if the company wishes to invest that money into future projects.
The equity consists of two kinds:
Common share: common share are the share offered to public the owners of those share are the owner of the company.
Preferred shares: those are specially issued shares that are different in some characteristics from the common share in term of dividends payment ; the preferred share owner are entitled for a fix dividends unlike the common where they may get dividends or may not depends on the company profitability; yet they have not voting privileges unlike the common share holders.
What is Debt?
Debit instruments type are as follows:
Bonds:
Bonds are the most common Debit instrument. Bonds are debt securities, in which the bond issuer owes the holder a debt. The Bond issuer is obliged to pay interest (coupon) and repay the principal later on a given date called (maturity). A bond is like a loan in that the issuer is the borrower or debtor, and the holder is creditor.
Debenture:
It a debt instrument similar to the bond, yet the debentures are not securitized by an asset; it is secured by a general claim on assets