Examples of Owners Equity

by Catherine
(Cebu, Philippines)

Capital Q:Give examples of owners equity...

A: Okay, the two most common forms of owner's equity are:

Capital: The most common form of equity. Capital applies to a sole proprietorship. It is the most common term for when an owner invests in his or her business.

Reserves: This is the other most common form of equity. Reserves are simply profits that you are keeping in the business. Whereas with capital the owner is putting his own assets (usually money) into the business, with reserves the business is generating a profit and that profit is kept in a separate account to "capital." The account it is kept in is usually called accumulated profits.

In more complex types of businesses with more complex ownership structures you get more complex equity. For example, in a company you have multiple owners (called shareholders), and each owner owns shares in the company. In public companies (companies traded on a stock exchange like the New York Stock Exchange pictured below), you can have hundreds or even thousands of shareholders (owners). The "capital" account for a company is therefore called share capital .

The New York Stock Exchange

Sometimes you also have more than one type of share capital because you have different classes or types of shares. So you get the ordinary share capital account for ordinary shares and preference share capital account for "preference shares" ("preference shares are simply shares that have special rights or preferences, for example they get paid "dividends" before ordinary shareholders).

Hope that helps!

Good luck with your studies!

Best,
Michael Celender