Equity Securities
An equity security represents ownership interest held by shareholders in an entity (a company,
partnership, or trust), realized in the form of shares of capital stock, which includes shares of both
common and preferred stock.
Holders of equity securities are typically not entitled to regular payments—although equity securities
often do pay out dividends—but they are able to profit from capital gains when they sell the securities
(assuming they’ve increased in value).
Equity securities do entitle the holder to some control of the company on a pro rata basis, via voting
rights. In the case of bankruptcy, they share only in residual interest after all obligations have been paid
out to creditors. They are sometimes offered as payment-in-kind.