Shareholder Equity Definition

Shareholder equity is the net ownership stake that shareholders have in a company. It represents the residual value of a company’s assets after liabilities are paid. This value can be divided into two parts: common equity and preferred equity. Common equity is the portion of shareholder equity that belongs to common shareholders, while preferred equity is the portion that belongs to preferred shareholders.

Shareholder equity can be positive or negative. A positive shareholder equity balance means that the company has more assets than liabilities. A negative shareholder equity balance means that the company has more liabilities than assets.

Shareholder equity can be increased through investment by shareholders or by retaining earnings. It can be decreased through dividends, share repurchases, or issuing new shares.