Equity in finance has a name deeply rooted in its concept of fairness. The term “equity” traces back to its original meaning, which is closely tied to notions of impartiality and justice. Its history also delves into legal contexts, particularly in England during the 15th century. During this time, there emerged the concept of an “equity court,” presided over by a chancellor. This legal entity sought to administer fairness and justice where the common law fell short.
In the realm of finance, equity refers to ownership. When someone has equity in a company or property, they have a stake or a share of ownership in that asset. This ownership implies certain rights and claims to the asset’s value and earnings. This definition draws from the principles of fairness and balance, as equity in finance aims to distribute ownership fairly among shareholders.
So, why is it called equity in finance? The term “equity” not only speaks to the historical roots of fairness and justice but also defines the balance of ownership in financial assets. In its essence, equity represents the notion of fairness in distributing ownership and its accompanying rights.
(Response: Equity in finance is called such because it embodies the principles of fairness and ownership balance within financial assets.)