Sweat equity

Sweat equity is an ownership interest in a business that was due to labor, rather than the payment of funds. Sweat equity recognizes the amount of work contributed to a business. A common form of sweat equity arises when an investor buys a run-down property and then personally spends a substantial amount of time renovating the project. In this case, the investor’s efforts translate into a substantial increase in the value of the real estate investment business. In a startup company, some of the original partners are awarded shares in exchange for invested funds, while others are awarded shares in exchange for their efforts in running the business.