Equity is commonly referred to as the company assets that are the property of the owner and its investors. When a business is started, the owner(s) put money toward financing operation. This creates a combination of assets (purchases) and liabilities (obligations of debt) in the business. Equity is calculated by subtracting total liabilities from total assets. When liabilities surpass assets, negative equity occurs.
Although equity can take shape as any type of security factor that represents ownership in a business, it is most popularly represented as the stock shares in a corporation. Investors own these equity shares as either common stock or Preferred stock. When start-up companies look for Equity Financing, the value of their equities are considered risk investments because of the unstable nature of prices; however, equity value tends to rise over a long term period.