Definition of equity

Question

financial instruments can be categorized by "asset class" depending on whether they are equity based (reflecting ownership of the issuing entity) or debt based (reflecting a loan the investor has made to the issuing entity).

I was wondering why equity is reflecting ownership of the issuing entity?

My understanding is that for a stock/equity, its issuing entity is a company/firm that sells the stock/equity, while its receiving entity is an investor that buys the stock/equity, and equity reflects ownership of the receiving entity i.e. investor instead of the issuing entity i.e. the company. Or am I wrong?

Thanks and regards!

score 3 · Accepted Answer · answered Sep 17 '11 at 21:58

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I was wondering why equity is reflecting ownership of the issuing entity?

That is the definition of equity in this regard.

My understanding is that for a stock/equity, its issuing entity is a company/firm that sells the stock/equity, while its receiving entity is an investor that buys the stock/equity

Correct.

equity reflects ownership of the receiving entity i.e. investor

Incorrect.

Equity reflects ownership by the receiving entity of the issuing entity.

That is, when you buy stock in a company (taking an equity stake in the company) you buy a piece of the company. It would be rather odd for the company to own a piece of you when you buy their stock.

answered Sep 17 '11 at 21:58

George Marian

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I think the last one was merely a type/grammar mistake rather than misunderstanding of the concept :) – user2932 Sep 17 '11 at 22:06
Freudian slip, perhaps. Some days it appears that Microsoft owns me, not vice versa. – JTP - Apologise to Monica Sep 17 '11 at 22:14
Agree with @DVK – AGamePlayer Sep 03 '14 at 12:53

score 1 · Answer 2 · answered Sep 17 '11 at 23:22

The word equity always refers to the ownership of something, whether it be a company or a home.

The wikipedia article is differentiating companies by how they raised money for operations. Equity companies, by their definition are those that sold an interest in the company in exchange for capital. Debt based companies, again by their definition, are those that borrow money from investors, but instead of an ownership stake they promise to pay back the money presumably with interest.

Definition of equity

2 Answers2