Legal Definitions - Sweat equity

Sweat equity refers to the ownership interest that a person gains in a partnership by contributing labor instead of capital. This means that a person can become a partner in a business by working for it instead of investing money into it.

For instance, if two people decide to start a business together, one person may contribute money to the business while the other person contributes their time and effort. The person who contributed their labor would have sweat equity in the business, meaning they would have an ownership interest in the company even though they did not invest any money into it.

Another example is if a person works for a startup company and agrees to take a lower salary in exchange for a percentage of ownership in the company. This person would have sweat equity in the business because they earned their ownership interest through their hard work and dedication to the company.

These examples illustrate how sweat equity allows individuals to become owners in a business without having to invest money. Instead, they can contribute their labor and skills to the company and earn an ownership interest through their hard work.