Owner's Equity Law and Legal Definition
Owner’s equity is the owner’s rights to the assets of the business. The calculation for owner’s equity is assets minus liabilities. For example, if the value of the business assets is $3,500,000 and the total business liabilities are $2,500,000, the owner’s equity is $1,000,000. Owner's equity is expressed differently in each type of business. In a sole proprietorship or partnership, it is expressed as the owner's or partner's capital account. In a corporation, it is expressed as retained earnings. Owner's equity is increased by (a) increases in owner capital contributions, or (b) increases in profits of the business. If a business owner chooses to withdraw funds from the owner’s equity account, the value of the funds withdrawn will be taxed as capital gains.
