Equity

Equity is a form of ownership in a business, which may be in the form of shares.

Equity is a type of economic interest that the holders of a company’s shares have. When a business is organized as a corporation, equity is a form of ownership, and it is the owner's obligation to pay debts and other obligations on behalf of the corporation. Equity allows business founders to attract investment capital to help finance their venture, build their business, and incentivize employees to remain with the organization.

Equity is divided among shareholders who hold a certain percentage of ownership in a business. When a business is starting, the founders and investors put up their own money to get the company up and running, and in return, they receive a percentage of the ownership in the form of shares. Over time, a company will issue additional shares to reward employees or to raise more capital, and this will affect the percentage of ownership each shareholder has in the organization.

Let’s suppose John and Joe are co-founders of a company and they each put up $50,000 for a 50/50 ownership split. This would mean that they both have 50% equity or ownership in the company. Later, the duo decides to bring on an investor to inject more capital into the business. The investors agree to invest $100,000 for a 33% ownership stake. This would give John and Joe each a 33% stake in the company and the investor 33%. As you can see, equity is an important part of running a business, as it allows business owners to attract investors, incentivize employees, and finance their business.