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Know The Difference between Share-Holder and Equity-Holder

Have you been confusing the difference between a share-holder and an Equity-holder as well?

All shareholders are equity holders but not all equity holders are shareholders.

What does that even mean?

What determines whether you are a share holder or just an equity holder is the legal structure of the business.

Some businesses don’t actually have shares, based on their legal structure.

For example sole proprietorship (Business name/Enterprise) and Partnership business.

Equity means percentage of ownership

The sole owner of a sole proprietorship has 100% equity. There are no shares in the business.

In a partnership business, the partners, depending on the numbers are Co-owners of the equity.

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They all have equity but they don’t have any specific number of shares attached to each person because the business is not structured to have shares.

The shares of a company means units of stock of the company.

Shares means ownership or equity that can be quantified in terms of units.

Only a company limited by shares can have shareholders.

For example, if a person owns 300,000 units of shares of a one million share capital company, we say that he owns 30% equity.

So the equity in company limited by shares is measured by the number of units of shares owned by that person divided by the overall number of shares outstanding in the company.

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The gist of the matter is that equity shareholders can only be found in a company limited by shares.

Sole proprietorship and partnerships only have equity holders but not shareholders.

Hence the statement; all shareholders are equity holders but not all equity holders are shareholders.

I hope this makes sense?



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