equity

play
noun eq·ui·ty \ˈe-kwə-tē\
Updated on: 26 Jul 2017

Definition of equity

plural

equities

  1. 1a :  justice according to natural law or right; specifically :  freedom from bias or favoritismb :  something that is equitable

  2. 2a :  a system of law originating in the English chancery and comprising a settled and formal body of legal and procedural rules and doctrines that supplement, aid, or override common and statute law and are designed to protect rights and enforce duties fixed by substantive lawb :  trial or remedial justice under or by the rules and doctrines of equityc :  a body of legal doctrines and rules developed to enlarge, supplement, or override a narrow rigid system of law

  3. 3a :  a right, claim, or interest existing or valid in equityb :  the money value of a property or of an interest in a property in excess of claims or liens against itc :  a risk interest or ownership right in propertyd :  the common stock of a corporation

Examples of equity in a Sentence

  1. In making these decisions we should be governed by the principle of equity.

  2. We've been slowly paying off our mortgage and building up equity in our house.

Recent Examples of equity from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'equity.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of equity

Middle English equite, from Anglo-French equité, from Latin aequitat-, aequitas, from aequus equal, fair


Financial Definition of EQUITY

equity

What It Is

Put simply, equity is ownership.

In the trading world, equity refers to stock. In the accounting and corporate lending world, equity (or more commonly, shareholders’ equity) refers to the amount of capital contributed by the owners or the difference between a company’s total assets and its total liabilities.

In the real estate world, equity refers to the difference between an asset’s market value and the debt owed on the asset.

How It Works

The two most common types of equities traders encounter are common stock and preferred stock. Share certificates bearing the name of the shareholder, the number of shares, and the name of the company represent these equities, or shares. The number of shares a corporation is authorized to issue is outlined in its corporate charter. When a company decides to sell additional shares to new or existing shareholders, this is sometimes called raising equity.

Although shareholder rights vary by company, one of the most prominent characteristics of equity is that it entitles the owner to vote on certain matters and to do so in proportion to the number of shares he or she owns. The company’s articles of incorporation and bylaws determine the number of votes each share is entitled to.

As you can see in the sample balance sheet for XYZ Company, equity is generally broken out into the par value of the shares outstanding, any additional paid in capital, and any earnings retained by the company.


Why It Matters

Equity holders enjoy voting rights and other privileges that only come with ownership, because equity represents a claim on a proportionate share of a company’s assets and earnings. These claims are generally subordinate to lenders’ claims, but only equity holders can truly participate in and benefit from growth in the value of the enterprise.

Some financial instruments have equity characteristics but are not actually equity. Convertible debt instruments, for example, represent loans that convert into shares when a company (the borrower) crosses certain thresholds, thereby turning a lender into an owner in certain events. Stock options also act like equity in that their value changes with the value of the underlying shares, but the option holders generally do not have voting rights and are not eligible to receive the dividends or other distributions made to bona fide equity holders.

It is important to understand that although balance sheet equity represents the company’s net worth, the company’s shares are ultimately worth only what buyers are willing to pay for them.


EQUITY Defined for English Language Learners

equity

play
noun

Definition of equity for English Language Learners

  • : fairness or justice in the way people are treated

  • finance : the value of a piece of property (such as a house) after any debts that remain to be paid for it (such as the amount of a mortgage) have been subtracted

  • : a share in a company : a share of a company's stock


Law Dictionary

equity

play
noun eq·ui·ty \ˈe-kwə-tē\

Legal Definition of equity

plural

equities

  1. 1a :  justice according to fairness especially as distinguished from mechanical application of rules prompted by considerations of equity comity between nations, and equity require it to be paid for — F. A. Magruder b :  something that is equitable :  an instance of equity the inequities produced by the system are outnumbered by the equities

  2. 2a :  a system of law originating in the English chancery and comprising a settled and formal body of substantive and procedural rules and doctrines that supplement, aid, or override common and statutory law the judicial power shall extend to all cases, in law and equity, arising under this Constitution — U.S. Constitution art. III — see also chancery — compare common law, law Editor's note: The courts of equity arose in England from a need to provide relief for claims that did not conform to the writ system existing in the courts of law. Originally, the courts of equity exercised great discretion in fashioning remedies. Over time, they established precedents, rules, and doctrines of their own that were distinct from those used in the courts of law. Although for a time the courts of equity rivaled the law courts in power, the law courts maintained an advantage partly as a result of forcing the equity courts to hear only those cases for which there was no adequate remedy at law. The courts of law and equity were united in England in 1873. Courts of equity also developed in the United States, but in most states and in the federal system courts of law and courts of equity have been joined. The courts apply both legal and equitable principles and offer both legal and equitable relief, although generally equitable relief is still granted when there is no adequate remedy at law. b :  the principles that developed in the courts of equity :  justice in accordance with equity equity treats a devisee who procures a will by fraud as a constructive trustee — W. M. McGovern, Jr. et al.; also :  justice in accordance with natural law c :  a court of equity sat alone for some time in equity — O. W. Holmes, Jr.

  3. 3 :  a body of doctrines and rules developed to enlarge, supplement, or override any narrow or rigid system of law

  4. 4a :  a right, claim, or interest existing or valid in equity b :  the money value of a property or of an interest in property in excess of any claims or liens (as mortgage indebtedness) against it c :  a risk interest or ownership right in property; specifically :  the ownership interests of shareholders in a company d :  the common stock of a corporation — compare asset, debt

Origin and Etymology of equity

Latin aequitat- aequitas fairness, justice, from aequus equal, fair





Seen and Heard

What made you want to look up equity? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

WORD OF THE DAY

to fight against or to call in question

Get Word of the Day daily email!

Test Your Vocabulary

Time Traveler Quiz: Which Word Came First?

  • time-traveler-quiz-which-word-came-first
  • Which came first?
Name That Thing

Test your visual vocabulary with our 10-question challenge!

TAKE THE QUIZ
Word Winder's CrossWinder

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!