Equity Participation

DEFINITION of 'Equity Participation'

Ownership of shares in a company or property. Equity participation may involve the purchase of shares through options or by allowing partial ownership in exchange for financing. The greater the equity participation rate, the higher the percentage of shares owned by stakeholders. Allowing stakeholders to own shares ties the stakeholders' success with that of the company or real estate investment. In this case, a more profitable company will provide stakeholders with greater gains.

BREAKING DOWN 'Equity Participation'

Equity participation is used in many investments for two primary reasons. First, it is used to tie the financial rewards of executives to the fate of the company, increasing the likelihood that executives will make decisions that will improve company profitability. This type of compensation may be delayed, reducing the possibility of executives making short-term decisions to boost share price. Second, it is used by companies operating in emerging economies in which local governments want to reap the rewards brought on by development. Moreover, share ownership also allows local governments a say in company decisions.

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