Equity Capital refers to the capital collected by a company from its owners and shareholders in exchange for ownership in the company. It is not liable to repay the fund raised through equity financing. Equity capital can be used to finance operations, expand businesses, or pay dividends.
Members’ Capital
Members’ capital on the balance sheet represents the equity interest in a company that belongs to shareholders. It is the contributed capital from members plus retained earnings.
While assets represent value the company owns, equity represents investment in exchange for a stake in the company. Capital is the owner’s investment of assets into a business and is a subcategory of owner’s equity.
Examples of capital or equity include retained earnings, accumulated profits, common and preferred stock, general and other reserves. The fund invested by the owner in the business or net amount claimable by the owner is capital or owner’s equity or net worth.
Significance of Equity
Equity represents ownership interest and is one source of a company’s capital along with debt. Equity capital funds new projects, acquisitions, or operating losses. It does not need direct repayment but investors expect returns through dividends, share price appreciation, or both. Equity capital is listed on the balance sheet and calculated by total assets minus total liabilities.