The Types of Equity and Their Functions

Common Stock

Common stock represents ownership in a corporation and usually gives the holder the right to vote at shareholder meetings and receive dividends.

Preferred Stock

Preferred stock is a type of equity that has a higher claim on a company's assets and earnings than common stock.

Restricted Stock Units

RSUs are a form of equity compensation that is issued to employees in the form of shares of stock or the cash equivalent.

Stock Options

Stock options give employees the right to purchase a specified number of shares of company stock at a fixed price.

Employee Stock Purchase Plans

ESPPs allow employees to purchase company stock at a discounted price, usually through payroll deductions.

Performance-Based Equity

Performance-based equity, also known as performance stock options, are stock options that are tied to specific performance goals.

Sweat Equity

Sweat equity refers to the value that employees add to a company through their hard work and effort.

Contingent Value Rights

CVRs are a type of equity that gives the holder the right to receive additional compensation if certain conditions are met.