What is Equity and how is equity divided in Private Limited Company?

In general terms, equity means the quality of being fair and impartial but in Business Industry it is the value of shares which is issued by a company. If equity is to be defined mathematically then Equity = Assets - Liabilities.

It is the value of the asset/shares which doesn't include the liabilities on that asset.

With the diversity of the type of asset, the definition of equity changes to various forms. Stock or any security which represents ownership interest either in a private or public company is called private equity.

A shareholders equity is calculated as the amount of the funds contributed by the owners(shareholders) and the retained earnings(losses)

How is equity divided in Private Limited Company?

Equity capital can be divided into reduced investment, depending on its nature.

These are also the preference shares which are entitled to the holder for a fixed premium payment. The equity division depends on the Idea and Capital that is being invested in the Company.

It is also based on the mutual understanding & contract between the shareholders and the promoters.
 

Under the Companies Act, 2013 restricted equity consist of the share of capital and also the fair amount which is reserved and the revaluation reserve that is defined by the Accounting Act.

The shareholders have the weakest position in case of bankruptcy, as the investors (company creditors) have the major priority in the distribution of the estate's assets.

This means that the working shareholders often lose their gross investment due to such mishaps.

On the other hand, there are advantages as well as the liability of the shareholders are limited to the price paid for the shares (limited liability).

The equity division is based on a percentage of the amount of money the shareholders have invested in the Company.