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equity

EK-wih-tee /ˈekwəti/

nounC1GMATCAT

FinancialProfessional

Ownership interest in a company, often in the form of stock options or shares given to employees.

In compensation, equity means you own a piece of the company. If the company succeeds, your equity becomes very valuable.

The story behind the word. 'Equity' comes from the Latin 'aequus,' meaning 'even' or 'level.' In a legal sense, it refers to fairness that goes beyond the strict letter of the law. In business, it refers to your 'fair share' of a company's value.

Word relationships

shares: Shares are the actual units of ownership; equity is the general concept of that ownership.
stock options: Stock options are the right to buy equity at a certain price, not the equity itself yet.

debt: Equity is what you own; debt is what you owe.

Commonly confused with

equality: Equality means everyone gets the same; equity means everyone gets what is fair or a share of ownership.

Word family

equitable (adjective): Fair and impartial.
equitably (adverb): In a fair and impartial manner.

Collocations

sweat equity
private equity
equity stake
brand equity

Example sentences

"Equity is a roguish thing: for law we have a measure, know what to trust to; equity is according to the conscience of him that is Chancellor." A classic legal definition of fairness.
"The startup couldn't pay a high salary, but they offered 1% equity in the company." A startup job offer.

Memory hook

EQUITY = EQUal share of the PIE (the company). Your fair share of the company.

When not to use

Don't confuse this with 'equity' meaning 'fairness' in social justice contexts, though they share the same root.

Fun facts

'Sweat equity' refers to the value added to a project by hard work rather than cash investment.
Many early employees at Google and Facebook became millionaires solely through their equity.