Equity

Equity is the interest in a company that is held in the form of shares or other securities. Owning equity means that you are entitled to a portion of the company's assets and earnings. There are different types of equity, such as ordinary shares, preference shares and options. With equity financing, companies raise capital by selling company shares. Start-ups and early-stage companies often rely on this type of financing. Owning equity often goes hand in hand with the right to exert influence over the company. The larger the shareholding, the more influence the investor has. The return on equity consists mainly of dividends and capital gains. However, equity investors also bear a considerable risk, as in the event of a company failure, equity holders are only paid out after all other obligations have been met. Nevertheless, they can realise considerable returns if the company performs well.