Junior equity can be defined as stock issued by an organization that positions at the base of the priority ladder in regards to the ownership structure.
Common stock is generally alluded to as junior equity since it is subordinate to preferred stock.
Equity, also referred to as net worth, shows the sum of money that is going to be returned to investors if all of the organization's assets were sold and obligations were paid off.
Not all investors have equivalent rights, however.
There is a hierarchy figuring out who can claim organization resources first and those who own subordinate equity are at the base of it.
That implies that in the case of a bankruptcy, holders of junior equity might receive nothing in return.
Common stock investors have rights to an organization's assets only after bondholders, preferred stock investors as well as other debtholders are paid in full.
Junior equity additionally takes a back seat to preferred stock with regards to earnings distribution.
Preferred stock investors get an agreed upon dividend payment at regular intervals, making them similar to bonds.
In contrast, a organization's board of directors (B of D) may not deliver common stock investors a dividend payment if it is unable to generate enough profit.
To sum up, compensating preferred stock investors takes priority for organization executives.