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Equity is the net worth of a company. This represents the difference between what you owe (liabilities) and what you have (assets). If you sold all your assets today, and if you paid off your liabilities with the money received from the sale of your assets, the money you would have left would be equity.

Your equity represents the health of your business since it is the amount of money left after all of your debts are satisfied.

Equity comes from two sources:

  • Money invested in your company

  • Profits or losses from your business

Of course, an owner can also take money out of the company. Such withdrawals, called owner's draws, reduce the company equity.

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