Equities: Overview

Companies can either be publicly listed (on a Stock Exchange) or privately owned.

Every company starts as privately owned. When a company gets to a certain size, it may decide to list on a stock market by way of an Initial Public Offering (IPO).

A company may choose to list on an exchange in order to raise external capital and for the shareholders to get a ‘pay day’ i.e. monetise the value of their shareholding

An Investment Bank / Corporate Finance Broker would handle the listing of a company to a Stock Exchange and they decide on the ‘Market Value’ of the company.

Equity is the name given to money that is invested in a company. This is done by purchasing shares of that company in the stock market, through an exchange. Equities are therefore an asset class.

The expectation of the equity investor is that the shares purchased will rise in value in the form of capital gains and/or generate dividends.

Types of Equity

There are many types of equity that together make up the shareholders equity. Here are the most common types of equity:

Common Shares

Common shares is the type of equity that represents the initial investment made in the company. With this equity, the shareholders get certain rights to business assets.

Preferred Stock

Preferred shares are those that offer a fixed dividend. If the company is wound up, the preferred stockholders would receive the amount that the company owes them before the common stock shareholders.

Treasury stock

This type of equity occurs when a business buys back shares from their shareholders. The repurchased shares fall under the category of treasury stock. This equity is the amount paid to buy shares back from investors and is normally in negative balance and deducted from the total equity of the company.