Equity capital, also known as share capital, is the money that a company raises by issuing shares of ownership to investors in exchange for cash or other considerations. When someone buys a share of stock in a company, they become a part-owner of the company and are entitled to a portion of its profits and assets.
Equity capital can be raised through an initial public offering (IPO) or subsequent stock offerings. The amount of equity capital a company has can affect its ability to grow and expand. Companies with a higher amount of equity capital are typically viewed as more financially stable and attractive to investors.
Equity capital can come in different forms, such as common shares and preferred shares. Common shares give investors a proportionate ownership in the company and voting rights at shareholder meetings, while preferred shares provide priority in dividend payments and liquidation proceeds, but do not offer voting rights.
Companies may also issue equity capital in the form of warrants or options, which give investors the right to purchase shares at a predetermined price and date.
Equity capital is an important component of a company’s balance sheet and is typically reported as a separate line item.
