Equity Finance: A definition

Equity or equity finance is the term commonly used to describe the ordinary share capital of a business.

Ordinary shares in the equity capital of a business entitle the holders to all distributed profits after the holders of debentures and preference shares have been paid.

In the broadest sense, equity gives you ownership. If you own stock, you have equity in, or own a portion — however small — of the company that issued the stock.

Equity finance
is provided by the sale of ordinary shares to investors. This may be a sale of shares to new owners, perhaps through the stock market as part of a company seeking a quotation, or it may be a sale of shares to existing shareholders, for example by means of a rights issue.

Having equity is the opposite of owning a bond or commercial paper, which is a debt the company must repay to you.

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