Shareholder vs. Equity Holder

by Andrew Gellert; Updated September 26, 2017
Stocks and bonds

"Shareholder" and "equity holder" are related but different terms. An equity holder is anyone who has a stake in the ownership of a company, and a shareholder is one type of equity holder. Companies can sell stock in particular and equity in general as a way to finance projects or cover operating debt, expansions or other outlays.

Equity

Whether it is a sole proprietorship, partnership or some kind of corporation, all companies have owners. Ownership of a company is called equity, and all parties who control some amount of equity are equity holders. In a sole proprietorship or partnership, the equity holders are the private parties who own the company. For a corporation, anyone who owns stocks or shares in the company is an equity holder.

Shares and Shareholders

A corporation may elect to sell shares in its ownership to raise money. When someone purchases one of these shares, he becomes both a shareholder and an equity holder. He might not necessarily be interested in directing the company, only in the potential to make money on the shares. Each share is equivalent to a small piece of the company itself, so if the company performs well, the value of the shares often increases.

Raising Equity

Sometimes companies want to begin work on expensive projects, but they cannot afford to pay for them. The company has the option of selling shares to the public, which brings in money at the expense of losing some control. People who hold stock have the right to hire and fire executives of the company, giving them a degree of control over the company's direction. The original owners can retain a majority stake in the company by holding some of the stock themselves, but they become accountable to their shareholders when they sell stock.

Equity in General

Equity is occasionally used beyond the context of corporate finance to refer to ownership over an asset that has no associated debt. For example, a homeowner is an equity holder in her house if the mortgage is paid off; she has a degree or percentage of equity while paying the mortgage. Similarly, a person who owns a car has equity in it.

About the Author

Andrew Gellert is a graduate student who has written science, business, finance and economics articles for four years. He was also the editor of his own section of his college's newspaper, "The Cowl," and has published in his undergraduate economics department's newsletter.

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