Business, Legal & Accounting Glossary

Definition: Equity

Quick Summary of Equity

A description applied to the ordinary share capital of an entity.

What is the dictionary definition of Equity?

Dictionary Definition

n. 1) a venerable group of rights and procedures to provide fairness, unhampered by the narrow strictures of the old common law or other technical requirements of the law. In essence, courts do the fair thing by court orders such as correction of property lines, taking possession of assets, imposing a lien, dividing assets, or injunctive relief (ordering a person to do something) to prevent irreparable damage. The rules of equity arose in England where the strict limitations of common law would not solve all problems, so the King set up courts of chancery (equity) to provide remedies through the royal power. Most eastern states had courts of equity or chancery separate from courts of law, and others had parallel systems of law and equity with different procedural rules. Now, most states combine law and equity and treat both under “one cause of action.” 2) the net value of real property, determined by subtracting the amount of unpaid debts secured by (against) the property from the appraised value of the property.

  1. Ownership, especially in terms of the net monetary value of some business.
  2. legal A legal tradition that deals with remedies other than (monetary) relief, such as injunctions, divorces and similar actions.
  3. legal Value of property minus liens or other (encumbrances).

Represents ownership interest in a firm. Also the residual dollar value of a futures trading account, assuming its liquidation at the going market price.

Full Definition of Equity

Equity is generally referred to as the owner’s share in an asset. The definition of equity is contextual. It refers to a security or a stock and presents an index of ownership interest. With respect to margin trading, it accounts for the value of securities within a margin account without the amount taken from a brokerage. It is also used with respect to investment.

It is one of the principal asset classes. In the balance sheet of a company, the funds provided by the owner of the company or the shareholder is known as shareholder’s equity.

In business, equity refers to the value of ownership. The term equity has a connotation of partial ownership, either because of claims by other owners or the pledge of assets as debt collateral, or both. This meaning is encapsulated in the fundamental accounting equation, which defines owners’ equity as equal to assets minus liabilities. Partial ownership is implied in the use of equity as a synonym for publicly traded stock, as in the term equity market. Residual ownership after subtracting the value of debt is illustrated by the term homeowner’s equity. An important measure of the financial performance of an equity investment is the return on equity (ROE), defined as net income divided by owners’ equity. In economics, equity is used as a term for fairness. In modern American law, the term equity has a meaning derived from this economic usage that relates to the type of relief sought by a plaintiff, which is classified as either legal or equitable.

Examples of Equity in a sentence

An equity joint venture is a company put together by multiple entities, each holding shares as agreed in the formation.
Because of their large amount of debt, the owners have very little equity in that company.

Synonyms For Equity

fairness, justice, capital, equality, share

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Equity. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. February 25, 2021 https://payrollheaven.com/define/equity/.
Chicago Manual of Style (CMS):
Equity. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/equity/ (accessed: February 25, 2021).
American Psychological Association (APA):
Equity. PayrollHeaven.com. Retrieved February 25, 2021, from PayrollHeaven.com website: https://payrollheaven.com/define/equity/

Definition Sources

Definitions for Equity are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 28th April, 2020 | 5 Views.