Investors who buy bonds lend money to the company for a specified period of time (e.g. 3 or 5 years) and the company promises to repay the loan at a specified time with a fixed interest rate. If you buy a bond, you are in effect lending money to the company and taking a chance that it will be able to pay you back when the time comes. If the Company goes bankrupt before the bond matures (i.e. when the company promised to pay you back), you will have lost all your money. If the company is very successful and goes public, you will not be able to benefit as much as if you had bought shares since you are not an owner in the company, you are a lender or bond-holder.
All the jargon used in investing can seem overwhelming at times. Explore the Lexicon to learn the language that will help make you a smart investor.
Stock in a company that entitled the holder to a share in the company's profits and a share of the voting power in shareholder elections.
A debt instrument that can be converted into other securities, such a preferred stock, under certain conditions.
an amount of money borrowed by the Company from an investor (e.g. a bond), or a bank (a loan).
If you own equity in a company, you become a shareholder of the company and own a small part of the business. Whether or not you have a vote in the direction of the company depends on what sort of shares the company is offering. Crowdfunding investors, unlike venture capitalists or angel investors who make large investments, are unlikely to have any say in the company's direction. Until the company "goes public" and does an IPO, the only way to get any of your money back is through the private markets, e.g. by finding an accredited investor to buy your shares, selling the shares back to the company (if the company wants to buy them), or selling the shares to an Angel Investor or venture capitalist who is interested in the company. It is not as easy as selling shares on the public markets. Equity can also be subject to dilution.
A type of partnership used to raise funding for a company. In exchange for an investment, the limited partner receives a share of the profits of the company and is shielding from the potential liabilities of the company. A limited partnership must have a general partner or partners who receive a greater share of the profits, but may be personally liable for the liabilities of the company.
A limited liability is a legal entity that combines the characteristics of a corporation and a partnership. The owners of an LLC are called members and act in a capacity similar to shareholders of a corporation.
Preferred stock combines elements of equity and debt securities. The holder of preferred shares may receive a set dividend from the company according to the terms of the preferred shares. If the company fails, preferred shareholders receive a portion of the liquidation after debt holders are made whole. Preferred shareholders typically do not have voting power in shareholder elections.