1. Types of Equity
So let's now discuss the various types of equity. If we pull in
the same diagram that we looked at previously, we wanna focus in on
the equity section. By far, the most common two types of equity would
be preferred shares and common shares. Now, if we start at the bottom
with the common shares, the common shares would be the last liquidation
position and the last dividend position. So what does this mean?
Well, if the company was liquidated, all the debt holders would be paid
first, and then the equity providers would then be paid. And amongst the
equity providers, it is the common shareholders, which would be in the last
liquidation position. Now, as you probably have guessed, preferred shareholders
are in a higher liquidation position than common shareholders and also have
a higher dividend priority versus common, hence the name preferred shareholders.
2. Let's practice!