The difference between equity and stock is that while all stock is a type of equity, there are several types of equity that are not stock. Equity in a business consists of everything the owners have invested plus any earnings the company retains. Common and preferred stocks are just one way that owners can establish an equity stake in a company.

　　TL;DR (Too Long; Didn't Read)

　　Equity and stock are not two separate creatures. Stock is equity, but equity includes other things.

　　Equity vs. Stock

　　Equity is the owners' stake in the business. On the balance sheet, it's what's left after you subtract company liabilities from the value of company assets. Analysts compare the amount of equity and the amount of debt to figure a company's strength. Corporate equity includes:

　　Common stock. This gives you an ownership stake in the company. You have a vote in how the company is governed unless you own nonvoting stock. If the company issues a dividend out of its annual profits, you receive some of the money.

　　Preferred stock. If earnings are low, preferred stockholders get paid ahead of the common stockholders.

　　Retained earnings. If the company has, say, $1.1 million in net income, it can issue that as dividends to stockholders or keep it for future needs. The amount retained is another form of equity.

　　Contributed surplus. Corporations often issue stock with a par value of, say, 10 cents or $1. If investors snap up the stock at a higher price, the excess is listed on the balance sheet as contributed surplus or additional paid-in capital.

　　Treasury stock. This is stock the company has purchased back from the customers.

　　Share Capital

　　Share capital is another name for the money invested by the company's stockholders. It's also called equity capital or paid-in capital. The difference between equity and share capital is that share capital doesn't include retained earnings, while equity does.

　　Equity and Partnerships

　　In a corporation, most non-stock equity is in the form of retained earnings. If the company is a partnership or a sole proprietorship, the owners' stake in the business is still equity, but it doesn't involve stock.

　　For example, suppose two landscapers join forces in a partnership. Each partner has equity in the business, representing his investment and contributions. That equity entitles them to a share of the profits and a say in running the company.

　　Partnership equity can be complicated. A 50-50 partnership could involve one partner investing more money, while the other provides superior skills and commits more time. A well-written partnership agreement can make it clear how this works and how it affects the division of the company's profits.

　　Equity and Sole Proprietorship

　　Like partners, sole proprietors have equity in their business but not in stock form. Equity consists of whatever capital they invest in the company.

　　If, for instance, you put $10,000 into your new business when you start it up, that's your total equity. Any assets you buy with the money remain part of your equity. Over time, though, equity will probably change when:

　　You withdraw money to support yourself.

　　You invest more money in the business.

　　You suffer a loss that reduces your capital investment.

　　You turn a profit and keep the money in the company, like retained earnings.

　　Equity and Bankruptcy

　　Even though equity and stock both represent an ownership stake in the business, it's possible you won't be able to collect if the business closes. In a partnership or sole proprietorship, you have to pay off all your business debts, so everything you invest is at risk. If that's less than your debts, your creditors can come after your personal assets as well.

In the event of a corporate bankruptcy, stockholders don't have to worry about losing more than they invest. However, their equity stake is vulnerable. Owners are at the end of the line to get paid after vendors and lenders. Even if the company emerges from bankruptcy, your shares may end up worthless.

　　Equity Vs. Stocks Vs. Sharess

　　iOnce you have a steady income and a solid savings program in place, you might consider socking away some of your money into some kind of investment. The jumble of gibberish-named options out there can -- thankfully -- all be categorized as one of two things: debt investments or equity investments. Debt investments, such as bank certificates of deposit or corporate bonds, involve loaning your money in exchange for interest payments, plus a return of your principal. In other words, you are the bank. Equity investments, such as shares of stock, represent an ownership position in a company. In other words, you own a piece of its assets, its profits and its future -- and if it loses money, it's your money it's losing.

　　Equity

　　An equity investment indicates ownership. You typically purchase an equity investment because you expect the value of the investment to increase, because you expect to obtain some other benefit from the investment, or a combination of the two. You probably bought your home with the expectation that it would increase in value, but you also expect to benefit from living in the home. So if the value doesn't increase as fast as you would like, it's not such a big deal. You probably bought your new car with the expectation that it would depreciate in value as soon as you drove it off the lot, but since you need the car to get to work, get to the grocery store and shuttle clients between job sites, the benefit of having the car outweighs the depreciation. If you borrowed money to pay for your home or your car, the difference between the item's fair market value and the amount you owe is your equity -- your free-and-clear ownership position.

　　Stock

　　Businesses may be organized in a number of different ways, including sole proprietorships, partnerships or corporations. A business may offer to sell a portion of its ownership by issuing stock. The most common form of stock is called -- oddly enough -- common stock. Common stock ownership allows you to participate in both the profits and losses of the company, and gives you the right to vote at the company's annual stockholders' meeting. Common stockholders are also shielded from personal liability for any lawsuits against the company, or for any losses that go beyond your ownership share's value. In other words, you may lose everything you sink into a company's common stock -- but you can't lose any more than that, even if the company's debts and liabilities go way, way deeper than your involvement.

　　Shares

　　A company's stock is divided into shares. Each share represents an equal amount of ownership in the company and is entitled to a participation in the company's profits and losses that is equal to every other share. If the company's board of directors declares a dividend, each share will receive the same amount. Each common share also entitles the stockholder to one vote at the company's annual stockholders meeting.

　　Considerations

　　Shares of stock are equity investments. There are two primary ways to make money from an equity investment in shares of stock, including capital appreciation and dividends. You get capital appreciation when the price of your stock increases above the amount you paid for it. Dividends are declared by the board of directors and typically represent your share of the company's profits. There are also risks associated with investments in shares of stock, including the possibility that the market price of the stock will decrease. You can lose some or all of your investment.

　　Differencse between Debt Market & Equity Markets

To be able to start a business, the first thing that’s required is capital, and the ways of raising capital can be classified into two broad categories: owned and borrowed. Equity Market is the primary source of owned capital, whereas, Debt Market is the source for borrowed capital. Both Equity Market and Debt Market comprise of investors, listed businesses and a governing body that formulates rules for the market.

　　Now, almost everyone has this confusion that whether debt financing is better, or equity financing is appropriate. Which is why, this article aims at distinguishing between Equity Market and Debt Market so that you can take a better call on where to invest, or which one to use for raising funds for your s business.

　　Definitions of Debt Market & Equity Market:

　　Debt market, or credit market is a financial market in which the investors are provided with issues/bonds and trading of debt securities. Debt instruments are assets that require a fixed payment to the holder, usually with interest. Equity market, or stock is a financial market in which shares are issued and traded through exchanges. Stocks are essentially securities that are a claim on the earnings and assets of a corporation.

　　What they symbolise: Participation in Equity Market shows interest of ownership in a corporation. Participation in Debt Market is solely a financial, interest-earning investment.

　　Debts on funds: Equity financing allows a company to acquire funds without incurring debt, whereas issuing a bond increases the debt burden of the bond issuer.

　　Risk levels: All stocks, irrespective of type, can be volatile and experience significant highs and lows in share values. Which is why, participation in Equity Market involves taking substantial amounts of risk. Participation in Debt Market is generally less risky than that in Equity Market.

　　Returns: Participation in Equity Market is generally with the hope of earning greater returns. Debt investments typically offer lower potential returns.

　　What’s for the investor: Those who participate in Equity Market can claim ownership of business whose shares they hold. Equity holders can exercise claims on the future earnings of the business. Bondholders can’t gain ownership of the business or have any claims of the future profits of the borrower. The borrower only has to repay the loan with interest.

　　Term: Equity Market fetches returns over a long period of time, whereas Debt Market fetches returns in a comparatively shorter term.

　　Nature of return: Returns from Equity Market are in the form of dividends, whereas returns from Debt Market are in the form of interest.

　　Level of research: Successful investment in Equity Market involves a greater deal of research and follow-ups.

　　Turnover rate: Compared to debt portfolios, equity portfolios have a substantially higher turnover rate.

　　In effect, it is necessary for companies to maintain a balance between debt and equity in their capital structure. From an investor point of view, participation in Equity Market or Debt Market depends on risk appetite, objective of investment, time duration etc. Whichever party you are, you should take your call after consulting experts who will provide you with up-to-date information on markets.