What is equity finance?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Equity finance is money a business raises in exchange for part ownership of it, for example by issuing shares in a company or bringing in a new partner. Unlike a loan, it has no repayment schedule. Instead, the people who provide it share in the business's profits and, often, in its decisions.
In a company, equity finance usually means issuing new shares. When an investor pays for ordinary shares, the bank balance goes up and the amount is usually recorded as share capital in the equity section of the balance sheet, though your accountant can confirm how a particular issue is recorded. In a partnership, bringing in a new partner who contributes money usually means opening a capital account in that partner's name.
Because investors are buying a share of future profits, they will often want regular, reliable financial reports. Accurate books, reconciled bank accounts and a clear record of what each investor paid and what they received for it make that reporting easier to produce.
In Australia
business.gov.au's guide to choosing funding names debt and equity finance as the main types of funding for businesses. It describes equity finance as money received for a share of ownership, such as when shares are sold to investors, and lists sources including family or friends, private investors such as angel investors, venture capitalists and a float on the stock market.
It notes that venture capitalists can bring management or industry expertise, and that private investors can put funds in for a share of the profits and equity. Its glossary describes an initial public offering as a company offering shares to the general public on the stock market for the first time.
Its crowdfunding guide adds crowd-sourced funding, an equity-based form of crowdfunding through which eligible companies sell shares to many people at once and so raise money without borrowing it.
Worked example
| Account | Debit (AUD) | Credit (AUD) |
|---|---|---|
| Business bank account | 60,000.00 | |
| Share capital | 60,000.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Recording an investor's payment for shares as a loan or as sales income.
- Taking money from a friend or relative with no written record of whether it bought a share of the business or was lent.
- Leaving out the costs of preparing share documents or a funding campaign, so the cost of raising the money is hidden.
Related terms
Related service
Small business bookkeeping
Your books kept current, every month.
Sources
- Choose your funding
business.gov.au, Australian Government. Current at 16 October 2026, released 18 February 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Crowdfunding
business.gov.au, Australian Government. Current at 16 October 2026, released 20 January 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.