Understanding Shareholder Equity

When discussing the acquisition, equity is the value of company sales after subtracting owed liabilities that do not transfer with the sale. Shareholder equity usually represents a company’s book value, where equity can be offered as payment-in-kind or as a representation of the pro-rate ownership of a company’s shares. Many companies see shareholder equity as a representation of net assets.

Investors often search for equity investments when it provides a greater opportunity to share profits and growth. Equity is important since it represents the investor’s stake in the company, ultimately being represented by their part of company shares. Owning equity typically allows shareholders to vote in corporate actions and elections for the board of directors. 

However, the responsibilities and rights of shareholders may differ from company to company, so it’s best to have a corporate law firm in Miami help you form a contract with clear expectations of shareholders. 

Retained earnings may be involved. They are a portion of net earnings not paid to shareholders as dividends. Retained earnings grow as time goes on, and the company reinvests part of its income. 

Shareholder equity can be positive or negative. When shareholder equity is negative, the company’s liabilities exceed assets, but if positive, the company has enough assets to cover liabilities. In some cases, over time, the amount of accrued retained earnings can exceed the amount of equity capital that the shareholders have contributed. Retained earnings often form the greatest portion of shareholder equity in companies with any amount of longevity. 

Navigating shareholder relationships can be tricky. An M&A attorney in Miami can guide your company through these relationships with sound legal advice. Visit Alvarez & Diaz-Silveira, LLP, online to learn more.