Jurisdiction(s):
United Kingdom

Key definition

Equity definition

What does Equity mean? In corporate finance practice, equity means the risk-bearing capital provided by a company’s owners, usually through ordinary shares, as distinct from debt finance. Equity holders have the residual interest in profits and assets: returns are by dividend or capital growth, and they rank behind all creditors on insolvency. Equity commonly carries voting and control rights and is subject to company law capital maintenance and distribution rules (for example, dividends only out of distributable profits and statutory pre-emption on new share issues unless disapplied). It is central to capital structure, M&A, venture capital and private equity transactions. Practitioners also describe certain...

US Public Company Equity Compensation Plans: A Practitioner’s Guide to Tax, SEC and Exchange Rules, Shareholder Approval and Key Drafting Issues

Published by a LexisNexis Share Incentives expert

Practice notes

Designing Equity compensation Plans for public companies

This Practice Note examines how publicly held companies structure equity compensation plans. Such businesses commonly issue equity awards to senior leaders and other key staff (and, in many cases, even to relatively junior employees) to align their interests with shareholders. Equity compensation covers non-cash remuneration for employees and other service providers, including non-executive directors and contractors. This Practice Note outlines the principal legal and practical considerations associated with these arrangements. Equity awards help reduce cash expenditure, which is particularly appealing for start-ups with limited funds seeking to attract top talent, and they also encourage recipients to engage in the company’s growth. For equity incentive plans relating to privately held companies, see Practice Note: Drafting a US Private company equity compensation plan.

Types of equity compensation

Share options
Restricted shares
Restricted share units
Employee share purchase plans
Performance shares
And more

Legal and stock exchange issues

This Practice Note addresses key legal and listing-related matters relevant to these plans.

Tax issues

Shareholder approval of the plan is required for the company to grant tax-favoured incentive share options pursuant to section 422 of the Internal Revenue Code (IRC)...

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Web page updated on 22/05/2026

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