Profit Share Vs. Equity Share


The concepts of profit sharing and equity share are unrelated, although it may be easy to confuse the two similar-sounding terms. Both profit share and equity share differ in their purposes, implications and recipients, but both have roughly to do with the assets of a business.


  • Profit sharing is the act of designating a portion of a company's profit to be distributed to its employees. When businesses earn a profit, they can choose to reinvest the profit back into the company, share it with investors in the form of dividends, share it among private company owners, share it with employees or any combination of these.

    Equity share is essentially an ownership stake in a business. Partners in a private partnership, members in an LLC and shareholders in a corporation all own an equity share of their companies. An equity share does not necessarily grant owners a right to a portion of company profit, but it does guarantee a portion of the net proceeds from company liquidation.


  • Profit sharing is a way to financially reward employees for their hard work. Employees comprise the engine that drives business success, directly influencing sales and profitability. Profit sharing is a way to show employees exactly what their hard work accomplishes for the company, and to prove that the company recognizes employees' contributions to company profit.

    Equity share is a way to get a company owner or investor truly involved and engaged with a company. Owning an equity share in a company can be highly beneficial if a company succeeds, giving company partners additional incentives to steer their businesses to success.


  • Profit sharing can be distributed among employees and company owners, but it is only rarely given to anyone outside of the company. Profit sharing is a purely internal activity between a company and those who work to make it succeed.

    An equity share, on the other hand, can be granted to nearly anyone, including other companies in some cases. Equity shares can be given to investors as an incentive to risk their money, or shares can be given to owner/managers who are involved in day-to-day management tasks. Equity shares can be given to stockholders from around the world, including individuals and institutional investors, for corporate businesses.


  • Profit sharing generally occurs annually or at less-frequent intervals. Companies may hold off on making profit-sharing decisions until they reach specific income levels, or they may increase or decrease profit-sharing frequency based on economic and market conditions.

    Equity share is not a lump-sum, repeatable payout like profit sharing. Purchasing an equity stake in a company is an investment, whether long or short term. It is not something to look forward to on a regular basis, but something to take the initiative and act upon at your own discretion.


Promoted By Zergnet


You May Also Like

  • Equity Vs. Stock Vs. Share

    The terms "equity," "stock" and "shares" are all related and, in many ways, they refer to the same thing in a business....

  • What Is Share Equity?

    A business needs money for its operations. There are two ways in which it procures capital: debt and equity. Debt capital is...

  • Difference Between Gainsharing & Profit Sharing

    A company's human resources division can use various methods to motivate their employees. Two such financial motivations are profit sharing and gainsharing....

  • Definition of Equity Share

    Equity share is a term thatcan be used in several different contexts, each with different meanings. It is therefore important to specify...

  • Comparison of Issue Debt vs. Equity

    Companies obtain funds for their operations by issuing either debt or equity capital. Debts are procured as loans from certain individuals. These...

  • Debt Offerings Vs. Equity Offerings

    Companies that need more funds to grow their business, branch into new areas or finance their existing operations can turn to both...

  • How to Prepare an Equity Share Agreement

    Equity sharing, also known as housing equity partnership (HEP), gives a person the opportunity to purchase a home even if he cannot...

  • Return on Asset Vs. Return on Equity

    Return on investment comes in many different forms. In general, the return on investment is calculated by dividing the profit made from...

  • Equity Partnership Agreements

    Partnerships are a type of business structure similar in many ways to a sole proprietorship but also with some similarities to a...

Related Searches

Read Article

How to Renovate a Bathroom Inexpensively

Is DIY in your DNA? Become part of our maker community.
Submit Your Work!