SYNOPSIS: Equity

Corporation Law: Equity in corporation law refers to the ownership interest in a company held by shareholders. It represents the residual interest in the assets of the company after deducting liabilities. Shareholders' equity is typically comprised of two main components:

Share Capital: This represents the amount invested by shareholders in exchange for ownership shares (common stock or preferred stock) of the company.

Retained Earnings: This represents the accumulated profits of the company that have not been distributed to shareholders as dividends but retained for reinvestment in the business.

Equity in corporation law also includes additional items such as additional paid-in capital, treasury stock, and accumulated other comprehensive income, depending on the specific legal and regulatory requirements applicable to the company.

Accounting Rules (Generally Accepted Accounting Principles - GAAP): In accounting, equity is a section of the balance sheet that represents the residual interest in the assets of the company after deducting liabilities. It is calculated as:

Equity = Assets - Liabilities

The equity section of the balance sheet typically includes:

Shareholders' Equity: This includes share capital (common stock, preferred stock), additional paid-in capital (amounts received from shareholders in excess of the par value of shares), retained earnings, and accumulated other comprehensive income.

Treasury Stock: This represents shares of the company's own stock that have been repurchased by the company and are held in treasury. Treasury stock is deducted from total shareholders' equity.

Equity is an important metric for investors and stakeholders as it provides insights into the financial health and value of the company. It reflects the shareholders' claims on the company's assets and represents the book value of the company's ownership interests.

In the general context of investing, equity refers to ownership in a company represented by shares of stock. When an individual or entity purchases equity in a company, they become partial owners and are entitled to a portion of the company's profits and assets.

Investing in equity typically involves buying stocks or shares of publicly traded companies through stock exchanges. Investors may also invest in private companies, where ownership is not publicly traded but can be acquired through private placements or venture capital funding.

Equity investing carries risks, as the value of stocks can fluctuate based on various factors such as company performance, market conditions, and economic trends. However, it also offers the potential for long-term growth and capital appreciation.

Investors assess equity investments based on factors such as the company's financial health, growth prospects, industry trends, and management team. They aim to build a diversified portfolio of equities to manage risk and maximize returns over time.

Overall, equity investing provides individuals with an opportunity to participate in the ownership and growth of companies, allowing them to potentially benefit from the success of businesses and the overall economy.

See also The Stockholders' Ledger, Capitalization Tables, and Capital.

See disambiguation on Equity in The Legal System.