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Equity Defined

Equity Defined

Equity can mean the following: 1) Fairness (legal context), or 2) Ownership interest (business context).

Article III Courts in the United States are vested with the power of law and equity. The power of equity allows the court to “do what is right” when the law does not provide an adequate remedy.

In the business context, equity simply refers to an ownership interest in a business.

A little bit more about Equity

Owners’s refers to an owner’s interest in the company. In accounting parlance, “owner’s equity” can be measured by deducting total liabilities from the total assets. Owner’s Equity is listed on the right side of balance sheet below the liability section.

The phrase “equity interest” (also called stockholders’ equity) refers to a stockholder’s portion percentage of ownership of the firm.

Equity ownership represents the lowest priority of claim over the assets of company. In case of company liquidation, equity holders are paid at the last after creditors’ claims are met.

Types of Equity

Types of equity may include percentage ownership of a partnership, membership interest or units of a limited liability company, or shares of a corporation. Within these, equity (particularly “preferred equity”) can take on any number of characteristics. It can provide for payment preferences, access to information, voting rights, approval rights, etc.

References for Equity




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