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Anonymous

Anonymous

Hey I am on Medial • 5m

I want to understand basic terms on what is equity and how do you decide? How are the profits shared later? Can someone pls explain with example for easy understanding?

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Charchit Vishwakarma

Startup enthusiast w... • 5m

Equity means ownership in a company. If you have equity, it simply means you own a part of the business. The percentage of equity each person gets is usually decided based on what they contribute, like money, skills, ideas, or time. For example, if two people start a business and one invests money while the other works full-time without salary, they might agree to split equity equally, or based on who contributes more. Once the company starts making profits, these profits are shared according to the equity percentages. So if you own 30% equity, you will get 30% of the profits after all expenses like salaries, bills, and taxes are paid. For instance, if you and a friend start a business and you put ₹2 lakh while your friend puts ₹8 lakh, and you agree on a 20%-80% equity split, then if the company makes ₹10 lakh profit, you will get ₹2 lakh and your friend will get ₹8 lakh. In short, equity gives you a right to share in the company’s success based on how much you own.

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