Two of the most common forms of securities are debt securities and equity securities. Debt securities are a type of financial interest where money is borrowed and paid back to the lender over time, along with interest and other agreed-upon fees. These types of securities are usually issued for a set period of time, and must be paid by the end of the time period. They are also called bonds, notes, deposits, or debentures.
One of the most common forms of debt securities is bonds, such as corporate bonds or government bonds. Debt securities are closer in nature to a financial contract between creditor and borrower, rather than a typical property interest.
In contrast to debt securities, equity securities are a share of interest in the equity of an entity, such as a partnership or corporation. The most common form of equity securities is that of company stock. Here, the owner of the equity securities actually holds some financial interest in the company itself.
The differences between debt securities and equity securities include:
- Payments: Debt securities holders are owed payments for reimbursement over time according to the securities contract with the borrower. Equity security holders do not receive any reimbursement payments over the course of time. Instead, owners of equity securities often acquire profits by buying and selling the equity securities.
- Profits and Gains: Equity securities holders may often enjoy rights to profits and gains as the company increases in value. Debt securities are only connected with the repayment of interests and principal according to the contract amount.
- Control: Holding a debt securities does not allow the holder to exercise any control over the operations of the borrower. In comparison, equity securities holders, especially stockholders, may be able to exercise some control with regards to certain company decisions.
Thus, debt securities tend to resemble loan contracts between a borrower and a lender, though they can sometimes have different formalities to them. Equity-based securities represent more of an ownership interest in a company or organization.
Both debt securities and equity securities are highly regulated under securities and finance laws. Legal disputes over debt securities are often remedied through private civil litigation, and they often involve many principles related to contracts and breach of contract laws. Thus, debt securities remedies often involve monetary damages for breaches, such as recovery of missing payment amounts.
Equity securities legal disputes are often associated with more specific types of conflicts and issues. This is mainly due to the close interaction between the holder and a company or business. For instance, issues such as insider trading or other stock violations are often subject to investigation by agencies such as the Securities Exchange Commission (SEC). These violations can also result in criminal consequences.
Both debt securities and equity securities can be subject to very complex legal issues. You may need to hire a business lawyer or financial lawyers if you need any help at all with securities issues. Your attorney can perform tasks such as researching finance laws, negotiating securities terms, and reviewing legal documents. If you are facing any finance disputes or conflicts, your attorney can help you file a lawsuit and can represent you in court as well.