What is Equity? (Views: 6789)
If you are looking for equity funding for your company, try our funding search tool.
The term “equity” is thrown around a lot and beyond its general connotation to what is “just” or “right”; its meaning can vary depending on context.
For example, Webster’s dictionary provides the following distinctions:
|
a : a right, claim, or interest existing or valid in equity b : the money value of a property or of an interest in a property in excess of claims or liens against it c : a risk interest or ownership right in property d : the common stock of a corporation |
Definition c is most appropriate for the financial world, where equity generally refers to ownership in an asset minus any debts. Thus equipment, land or a building are considered equity if they can be sold for profit. If they are used to generate income they might also be referred to as “capital”. On the other hand, if the asset in question is a company, the terms “stock”, “private/public equity”, “stockholders equity” can be used.
Additional uses of the word equity
The term equity release is used by insurance companies and refers to the process of turning a property into a long term loan, either by releasing a lump sum or by putting that money on reserve and turning it into a steady stream of income. The concept very much resembles “equity loans” or “mortgage loans” but with the addition of age restrictions and without monthly payments.
Our definition
On our website, we used the term equity to refer to any type of funding aside from loans, loan guarantees, grants and tax credits that require profit sharing or the attribution of shares. This includes complex derivatives, hedge funds, royalty programs, and other instruments.
