Ans:
The owner’s equity is negative if the business’s liabilities are bigger than its assets. The owner may have to speculate extra cash to hide the deficiency during this case.
When a corporation has negative owner’s equity, and the owner takes from the corporate, those attract are also nonexempt as capital gains on the owner’s legal instrument. For that reason, business house owners ought to monitor their capital accounts and take a look at not taking cash from the corporation unless their capital account contains a positive balance.