Equity Flashcards
Equity
Financial stake and ownership interest of the owner(s) in the business
How do you calculate net income?
Total revenue - all expenses
Retained earnings
Accumulated net income from previous years minus any dividends paid to shareholders
Dividends
What a business pays out to shareholders from business earnings
Sole proprietorship
-one owner has complete control of the business and provides capital from their own equity
-unlimited personal liability
Owner’s draw
when a sole proprietor takes money out of the business
Partnership
Two or more owners work together and contribute partner equity to build the business
-unlimited personal liability
Partner’s draws
In a partnership, when the owners want to take money out of the business
LLC
“Limited Liability Company”
-owned by one or more people
-owners contribute their own equity as members of the business
-no personal liability
Distributions
When LLC members withdraw funds from the business
How is distribution amount calculated?
Based on the member’s ownership percentage
Membership units
The equity belonging to individual members of an LLC
-like stocks
-also called capital interest
Common stock
Capital received in exchange for issuing of stock to shareholders
C corporation
-owned by one or more shareholders
-no personal liability
-shareholders pay in capital and receive common stock
-shareholders can elect and remove directors and make business decisions
Shareholder equity
The dollar amount that would be returned to shareholders if the business were liquidated and all outstanding debts were paid
S corporation
-business with 1-100 owners, all of which must be US citizens
-must maintain a board of directors
-owners do not carry any personal liability
-has tax advantages
Non-profit
-mission-driven organization
-has founders or a board instead of owners or shareholders
-use earnings to fulfill their mission; does NOT distribute money to its members
Net assets
Non-profit’s version of equity
Capital contributions
Funds or assets that owners/investors contribute to a business for operations and growth
-can be cash, property, equipment
How do you calculate total owner’s investments?
Owner investments - owner draws
How do you calculate owner’s equity?
Total owner’s investments + retained earnings + net income
Which business type(s) pay(s) dividends?
S- and C-corps
Capital
Financial monies the business uses for operations and growth
