Equity Vs. Stock Vs. Share

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Equity, stock and share are all closely related terms within the ownership structure of a corporation. The best way to understand their differences is to start with the broadest term, which is equity, and work toward shares, which represent a fractional form of business ownership.

Equity Basics

The most general meaning of equity is ownership in a business. Unlike stock and share, equity applies to non-corporate business structures as well. Anyone with a financial stake in a company, whether a sole proprietorship, partnership or corporation, owns equity. In accounting, the amount of equity owners have is based on the difference between business assets and liabilities. If the company holds $500,000 in assets and has $300,000 in liabilities, for instance, owners' equity equals $200,000.

Stock and Share

Each form of business ownership has its own distinct structure and profit-sharing model. In a partnership, for instance, profits are periodically distributed to partners. In a corporation, shareholders or stockholders own the company. When you hold or own stock in a corporation, you own a certain number of shares.

There are two primary forms of stock -- common stock and preferred stock. Most individual investors are familiar with common stock, which is the basic type bought and sold through stock exchanges. Preferred stock is a separate form, where owners receive an interest income from their ownership.

A share is a single unit of stock. Someone holding shares of stock in a business has a fractional ownership of the company. If a company has issued 100,000 shares of stock, and a shareholder has 1,000 shares, he owns one percent of the business. The number of shares owned equals your voting rights in decisions like electing board representatives.

Outstanding Shares vs. Float

Another key distinction in the equity structure and stock of a corporation is the comparison of outstanding shares to the floating shares. The outstanding shares are the total number of shares issued, or 100 percent of all corporate shares. A company's floating shares include shares traded on the open market. The float excludes certain restricted shares as well as shares owned by company insiders, and large institutions that register ownership with the U.S. Securities and Exchange Commission.

If a corporation has one million outstanding shares and 250,000 restricted shares, its float is 750,000 shares. A small float means fewer shares publicly traded, which contributes to higher volatility and price movement.

Warning

  • Issuing new shares of stock as employee compensation dilutes ownership, and can negatively affect share price.

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