What is Equity?

In finance the word equity has two main meanings:

  • A share or any other security which represents partial ownership of a firm
  • The value of a firm which has been contributed by the shareholders

In share terms, whenever you buy a share in a company you hold equity in that company. Companies can raise money by issuing equity, although this is usually deemed as being more expensive than using borrowed cash. Shareholder's Equity is denoted on the Balance Sheet in conjunction with liabilities to show the total amount of money injected into the company by shareholders. Venture Capital firms frequently purchase large amounts of equity (i.e. take ownership of a percentage of the company) in start-up companies as a way to inject money and to stake a claim on a percentage of the profits.


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