Legal Definitions - shareholders' equity

Shareholders' equity, also known as owners' equity, is the total value of the owners' financial interests in a business entity. It includes the capital contributed by the owners and any retained earnings.

Owners' equity is calculated by subtracting the total liabilities of a business entity from its total assets. The resulting amount represents the residual claim of the owners on the assets of the business.

For example, if a corporation has total assets worth $1 million and total liabilities of $500,000, its owners' equity would be $500,000. This represents the amount of money that the owners have invested in the business, as well as any profits that have been retained by the corporation.

Another example would be a small business owner who invests $50,000 of their own money into their business. If the business generates $10,000 in profits over the course of a year and the owner reinvests those profits back into the business, their owners' equity would be $60,000 ($50,000 initial investment + $10,000 retained earnings).

Overall, shareholders' equity is an important measure of a business's financial health and represents the value that the owners have in the business.