Shareholder’s equity, as a whole, refers to the overall equity available to the shareholders of a particular company or corporation. Shareholder’s equity is thus equal to the total assets of the company less the total liabilities of the company, as the company’s creditors and liabilities will always have first claim to the assets and property of that company.
Shareholder’s equity is whatever is left, then, after the debts have been paid out of the company’s assets. Shareholder’s equity is then split up among the individual shareholders in a fashion corresponding to how many shares each individual shareholder may hold. Thus, an individual shareholder’s equity will be some portion of the overall equite for all shareholders.
Essentially, understanding the notion of a shareholder’s equity necessitates understanding the relationship between a shareholder and the company in which he, she, or it holds stock. A shareholder’s equity arises from the fact that a shareholder has essentially invested some amount of money into the company by buying a piece of its stock, and thus, is owed some amount of the company’s property.
As mentioned above, creditors and liabilities always have the first priority over a given company’s assets, which means that shareholder’s equity is only taken out of what is left. Then what is left is owned, in some fashion, by the various shareholders. Shareholder’s equity is of particular significance in terms of cases when a company is dissolved through liquidation or bankruptcy, as in such cases, determining the disposition of the company’s assets is important.