Negative stockholders’ equity occurs when a company has lost a lot of money. When this happens, you will see an account called Accumulated Deficit on the Balance Sheet (Accumulated Deficit is what we call the Retained Earnings account when Retained Earnings is negative). When you see Accumulated Deficit, this means the company has incurred a lot of losses; for Sears, the Accumulated Deficit was $5.895 billion as of February 3, 2018.
Stockholders’ equity can also be decreased by Accumulated Other Comprehensive Losses, which are losses that bypass the Income Statement. One example is unrealized losses on available-for-sale debt investments. Sears had accumulated $1.072 billion in other comprehensive losses as of February 3, 2018.
Repurchases of the company’s own shares, known as treasury stock, also reduce stockholders’ equity. For Sears, the treasury stock account reduced stockholders’ equity by $5.82 billion. Many companies hold treasury stock and still have positive total stockholders’ equity, so the driving force behind negative stockholders’ equity is almost always a series of large losses.