How To Differentiate Equity And Debt?

The difference between debt and equity in financing depends on the sources of financing. If funds are raised from the investors then it is known as equity while if funds are taken from banks and lending companies then it is known as debt. Secondly, equity gives the right of ownership to the investors while debt financing does not give ownership rights to the investors. Thirdly, the equity allows the investors to share all the profits and losses of the organization while in debt, the investors only get the share contributed with additional interest. Moreover, if the company liquidates in future then the debt holders have the first right to claim as compare to the equity holders.