In the next few minutes:
An equity instrument is a security that gives you ownership of part of a company.
A dividend is a distribution of the company's net income to shareholders. Skipping one is not a default.
A company's dividend policy usually changes as it ages:
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Before selling equity, a company gives investors an equity prospectus. It discloses the security's rights and how the company plans to use the money raised:
Common shares are the most frequently issued form of equity.
The issuer raises capital and keeps control. Investors get fractional ownership with a small outlay.
Preference shares (preferred stock) mix features of both:
They also carry a liquidation preference: a set payout ahead of common shareholders if the company is wound up.
A preference share has a stated par value. Its dividend is a fixed percentage of par:
Kaveri skips its preferred dividend for two years, then resumes in year 3.
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The question is who holds the option.
The company has the right, but not the obligation, to buy the shares back at a prespecified call price.
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Private equity is usually issued to institutional investors through private placements. Compared with public equity:
Private firms aren't bound by the reporting rules for publicly traded firms, so disclosure is thinner.
Each fits a stage of the company life cycle:
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That's the reading.
Now test it on exam-style questions while it's fresh.