27 Apr Equity

Equity

Equity is a word whose meaning changes depending on the context in which it is used. In the context of startups and business, equity refers to ownership in a company. It that sense, it is a generic catch-all word. Equity can mean ownership in the form of stock in a corporation or units or membership interests in an LLC. More complicated and less common forms of equity include preferred shares, warrants, convertible notes, and profits interests. The word therefore takes many forms, regardless of exact title used to describe the type of ownership in a company. The word is commonly used by entrepreneurs, investors and business owners active in the startup world, where all players usually vie for some form of ownership in any of the business ventures in which they are interested in participating. However, with ownership come obligations, which is something that often isn’t clearly understood by certain individuals active in the startup world, particularly those who are first time business owners. For instance, owning an interest in a company that has other owners often requires the owners to comply with certain fiduciary duties to each other, such as the duty of care and duty of loyalty. Moreover, from a tax perspective, ownership can sometimes cause an owner to be responsible for tax liabilities without allowing the owner to receive enough income from the company to offset such liabilities.