Equity

Last updated: 2021-06-22

A company’s equity is the difference between assets and liabilities. Equity consists of the initial capital, capital contributions and profits remaining after share dividends or other withdrawals.

Another way to describe equity is net worth. This meaning has to do with the fact that it is the size of the equity that affects a company’s ability to survive during worse times.

In a limited company, a distinction is made between unrestricted equity and restricted equity. The restricted equity consists of share capital, revaluation fund and reserve fund, while unrestricted equity consists of the balance sheet and the year’s result. An important difference between the two types of equity is that unrestricted equity may be distributed, while restricted equity must be used within the company.

Sometimes people talk about a limited company’s own capital being used up.