Definition of Equity
What Is Equity?
Equity is contributed, for example, by shareholders, venture capitalists, and investors, or generated through surpluses in operational business.
Available equity can also be increased through retained earnings — profits remaining after tax and distributions to shareholders. These profits are not paid out to shareholders but remain in the company to support its further development.
In addition, equity can be raised through contributed savings, securities, or the issuance of additional company shares to shareholders.
Raising external equity is a fundamental decision for a company: when it issues shares to investors, these equity providers become shareholders themselves. They then have a corresponding say in the further development of the company, participate in its profits and risks, and assume liability.
