Equity

Ownership in a company or asset - a claim on whatever is left after debts, and on any growth in value.

Example

Owning shares of a company gives you equity in it; owning a house outright with no mortgage is full equity in it.

Important

Equity holders are paid last if a company runs into trouble, after every lender is repaid - the upside is uncapped, and so is the downside.

Related terms

• Debt — Money lent that must be repaid with interest, regardless of how the borrower's business or asset performs.
• Shareholder — Someone who owns shares, equity, in a company.
• Private markets — Markets for ownership stakes that are not listed on a public exchange - startups, private companies, and many funds.

Lessons that explain it

• Equity versus debt — Own a piece of something, or lend it money. The two sit at opposite ends of every risk-and-reward trade in investing. (10 min)
• Buying a small business almost always means buying a job — A small-business purchase is rarely a passive claim on cash flow. Most of what you are paying for is bound up with the seller's own labour, and the legal structure of the deal decides which liabilities move with it. (9 min)

All 578 terms in the Investing glossary