Question

“business question”

please explain briefly with examples

of

1)what is equity/private equity since i know its definition is what a company is worth, BUT how do you detrmine that???

2) what is shareholders/investors and how do i get one for me

since i just started my business and looking to learn this methods...

Answer 1

Question 1:

First and foremost you must understand the basic accounting equation which clearly portrays what equity is:

Equity = assets- liabilities

This is the equation on which a balance sheet is based on. This equation can also be used to calculate the worth of a company. Equity is also called the net worth of the company. When a company is sold this "net worth" is used to determine the selling price. It is the payment to be made to the shareholders of the company. Equity is the difference between assets and liabilities. By liabilities, we mean outside liabilities, ie, amounts borrowed by the company from people other than owners of the company. So equity is amount contributed by the owners of a company.

Equity or owner's equity, simply put, is the capital that you contribute towards your business. For a sole proprietorship, it's the money you put into your business. For a company, it has the same meaning, but its a little more complex than that. In a company, there are several owners, each owner contributes a certain amount and they get voting rights proportionate to the contribution they make to the business, compared with the total equity contributed collectively by the shareholders. A company can issue shares to specific people with the use of private placement, this sort of equity is called private equity. A company may also choose to issue shares to the public at large(listed companies do this), and the public can subscribe to these equity shares. This is called public equity.

Question 2:

Shareholders, as explained above, are owners of shares in a company. The terms shareholder and investor are almost the same. But they differ in the fact that they investors invest for returns. They may or may not be interested in the running of the business rather they do it only as a form of investment. But it is common to use these terms interchangeably, and the minute difference is mostly ignored.

To be a shareholder or investor, you need to buy shares in a company. You can do this by approaching an appropriate stock broker and opening a demat account.