What Is Equity Capital?
Equity is a unit of ownership in a company, and equity capital is raised by issuing shares to the shareholders of the company.
This is a series of explainers to educate and inform new investors. In association with Dun & Bradstreet India as knowledge partner.
Equity Capital: Definition, Meaning & Basics
Equity or shares are a unit of ownership in a company, and equity capital is raised by issuing shares to shareholders. It is also referred to as share capital.
Shareholders are the owners of a business, and bring in capital, take risks and directly or indirectly run the business. When a company is formed, the memorandum of association defines how much capital the company can raise from its shareholders. This is called “authorised capital”.
Firms issue a part of authorised capital to raise money from prospective shareholders. This is called “issued capital”. A company can change its authorised capital, subject to shareholders’ approval.
Equity capital is also called as residual capital. This means that shareholders have last right on the assets of a company. In the event of closure of a company, shareholders are paid in the end, after meeting other claims.
The equity capital of a company is not constant as it keeps changing due to various corporate events, such as a rights issue and additional issuance of shares.