Editing Equity (finance) (section)

==== Legal foundations ====
Investors in a newly established firm must contribute an initial amount of capital to it so that it can begin to transact business. This contributed amount represents the investors' equity interest in the firm. In return, they receive shares of the company's stock. Under the model of a [[private limited company]], the firm may keep contributed capital as long as it remains in business. If it liquidates, whether through a decision of the owners or through a [[bankruptcy]] process, the owners have a [[residual claimant|residual claim]] on the firm's eventual equity. If the equity is negative (a deficit) then the unpaid creditors bear loss and the owners' claim is void. Under [[limited liability]], where the financial liability is limited to a fixed sum, owners are not required to pay the firm's debts themselves so long as the firm's books are in order and it has not involved the owners in fraud.

When the owners of a firm are [[shareholder]]s, their interest is called shareholders' equity. It is the difference between a company's assets and liabilities, and can be negative.<ref>{{cite web|url=https://smallbusiness.chron.com/difference-between-insolvency-negative-equity-66732.html |title=Difference Between Insolvency And Negative Equity |website=Chron |date=September 8, 2020 |access-date=April 29, 2021}}</ref> If all shareholders are in one class, they share equally in ownership equity from all perspectives. It is not uncommon for companies to issue more than one class of stock, with each class having its own liquidation priority or voting rights. This complicates analysis for both [[stock valuation]] and accounting.