Equity is often get confused with Capital. These two things belong to same class of accounts but still have a difference. Only a full-learnt professional accountant can differentiate between the two. Most of people by making it easy make their difference erased which need to be shown in Books of accounts as main heading and sub heading.
Every business is start up with some amount, definitely for longer productivity their would be a huge some used as Initial money injected to business. This finance through which a business man starts its trade is known as Capital.
This capital will change its volume by yearly performance and gains of business, these gains may be on disposal of assets or other gains on investments, just like the main name, these gains are named as“capital gains”.
A business that is separate from its owner has its capital with the name Equity and contains components like:
Capital or share capital
In more detail, this is portion of the balance sheet, which represents the capital received from investors in exchange for stock i-e paid-in capital, shared capital and retained earnings. And also Stockholders’ equity represents equity stake currently held on the books by a firm’s equity investors. That is calculated either as the firm’s totals assets minus its all liabilities, or as share capital plus retained earnings minus treasury shares.
Stakeholder1s equity is often categorized as the book value or net worth of the company.
Broadly speaking, investors collect their “equity” through two ways:
Equity financing is raising capital through the sale of shares in an enterprise. This mainly refers to the sale of an ownership interest to raise funds for business purposes. While this term is generally related with financings by public companies listed on an exchange, it includes financings by private companies as well. Equity financing is distinctive from debt financing, which refers to funds borrowed by a business.
The equity-financing process is regulated a local or national securities authority. Aim is to protect the investing public from unscrupulous operators who may raise funds from unsuspecting investors and disappear with the financing proceeds. Guinness fraud is one example of equity financing or a share trading fraud at international corporate level.An equity financing is therefore generally accompanied by an offering memorandum or prospectus that contains great deal of information that should help the investor make an informed decision about the merits of financing. Likewise such information includes the firm’s activities, details on the directors and officers, practice of financing proceeds, financial statements, and risk factors and so on.
By going deep in Equity financing, there are following types under which shares are sold in a company. More share issued/sold more would be rising capital.
Shareholder so f these shares carry one voting right per share, are entitled to participate equally in dividends and, if the company is wound up, share in the proceeds of the company’s assets after all the debts have been paid.
Shareholders of these type of shares will usually have a preferential right to a fixed amount of dividend. They may be given a priority on return of capital on a winding up.
These are shares issued on terms, which the company will, or can, buy them back at certain future date. That date may be fixed as per policy set by directors. Not necessarily, but the redemption price is often the same as the issue price. This can be a way of making a clear arrangement with an outside investor.