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What’s the Difference Between Shareholders and Equity Holders?

What’s the Difference Between Shareholders and Equity Holders?

Shareholders and Equity holders can both be owners of a business, but these terms apply to different circumstances. Find out more in this guide.

24th June 2020
Reading Time: 3 minutes

Shareholders and equity holders have key differences which distinguish them from each other. Both terms share similar features, this includes their meaning, to have an interest or ownership in a company.

Business ownership

Different types of businesses are owned in different ways. For example, a sole trader owns their business through their Australian Business Number (ABN). Partnerships work the same way except that the business is owned by more than one person. Due to individual ownership, partners and sole traders are also liable for any debts or legal liabilities the business encounters. By contrast, companies can be owned by a number of entities, known as shareholders (or members). Shareholders can be other companies or individuals.

What is an Equity holder?

An equity holder is a broad term meaning any person who has a stake of ownership in a business. This includes shareholders as well as any person who has ownership interest. To understand the key difference of an equity holder you must note that ownership in a business does not just mean an issuance of shares and stock. Where a business has no shares, there can subsequently be no shareholders. 

Equity holders are common in sole proprietorships where the business is owned by one person. Therefore, the sole business owner is the 100% equity holder. Further, equity holders are in partnership agreements. A partnership agreement is where two or more people join to form a business. All partners have equity in the business, however, there is no stock or shareholders, so the partners are considered equity holders. 

What is a Shareholder?

In comparison, a shareholder also has ownership interest in a business but this is through shares. To break it down, a shareholder is a type of equity holder. A shareholder owns a share of stock which represents a part ownership in a business. This allows them to engage in decision making.

The amount of ownership interest is proportionate to the amount of stock shares the individual owns. A shareholders agreement helps a business to govern their relationship with its shareholders. This allows shareholders to participate in annual meetings despite not having any operational control of the business.

Key Differences

ShareholderEquity Holder
Do they have ownership interest in the business?
Do they have a share of stock?

Finally

In short, the key difference between a shareholder and an equity holder is the presence of stock shares. Just remember a shareholder can be an equity holder but an equity holder cannot be a shareholder.

Author
Liesel Millard

Liesel is a legal tech intern at Lawpath, working as part of the Content Team. She is currently in her second year of a combined Bachelor of Business and Bachelor of Laws degree at the University of Technology Sydney. She is interested in areas of sports, corporate and intellectual property law.