Ownership equity

related topics
{company, market, business}
{rate, high, increase}
{law, state, case}
{math, number, function}
{work, book, publish}

In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists. In an accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.

At the start of a business, owners put some funding into the business to finance operations. This creates a liability on the business in the shape of capital as the business is a separate entity from its owners. Businesses can be considered to be, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for, the positive remainder is deemed the owner's interest in the business.

This definition is helpful in understanding the liquidation process in case of bankruptcy. At first, all the secured creditors are paid against proceeds from assets. Afterward, a series of creditors, ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity is the last or residual claim against assets, paid only after all other creditors are paid. In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also known as risk capital, liable capital or simply, equity.

Contents

Equity investments

An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises. It may also refer to the acquisition of equity (ownership) participation in a private (unlisted) company or a startup company. When the investment is in infant companies, it is referred to as venture capital investing and is generally understood to be higher risk than investment in listed going-concern situations.

Full article ▸

related documents
Economy of Serbia and Montenegro
Economy of Burkina Faso
Imperial Chemical Industries
Economy of Benin
Economy of the Marshall Islands
Manufacturing
Stock market downturn of 2002
Palm, Inc.
Exxon
Speculation
Coltan
Reconstruction Finance Corporation
Network Rail
Electronic Data Systems
Economy of Guam
Double-entry bookkeeping system
Natural resource
Economy of the United States Virgin Islands
Economy of Palau
Economy of the Bahamas
Smoot-Hawley Tariff Act
Amoco
List of British television channels
Contango
Economy of Swaziland
Big Business
Bunge Limited
Economy of Andorra
Panasonic Corporation
Economy of Chad