What is equity?

Equity is the term usually used to explain the ordinary share capital of a business.
Ordinary shares in the equity capital of a business allow the holders to all distributed profits after the holders of debentures and preference shares have been paid.

Ordinary or equity shares are issued to the owners of a company. It is important to understand that the market value of a company's shares has little (if any) relationship to their nominal or face value. The market value of a company's shares is determined by the price another investor is prepared to pay for them. In the case of publicly-quoted companies, this is reflected in the market value of the ordinary shares traded on the stock exchange (the "share price").

In the case of privately-owned companies, where there is unlikely to be much trading in shares, market value is often determined when the business is sold or when a minority shareholding is valued for taxation purposes.

In your studies, you may also come across "Deferred ordinary shares". These are a form of ordinary shares, which are entitled to a dividend only after a certain date or only if profits rise above a certain amount. Voting rights might also differ from those attached to other ordinary shares.

Visit equity finance for more details.