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LSDefine
Simple English definitions for legal terms
equity financing
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A quick definition of equity financing:
Equity financing is a way for businesses to raise money by selling shares of ownership in the company, instead of borrowing money from a bank or issuing bonds. This means that investors become part owners of the business and share in its profits. It's like selling a piece of a cake to someone in exchange for money. The money raised through equity financing can be used to grow the business, hire more employees, or invest in new projects.
A more thorough explanation:
Definition: Equity financing is the process of raising funds by issuing capital securities (shares in the business) instead of taking loans or selling bonds. The capital raised through equity financing is called equity.
Examples:
- A startup company raises money by selling shares to investors.
- A publicly traded company issues new shares to raise money for expansion.
These examples illustrate equity financing because the companies are raising funds by selling ownership in the business to investors instead of borrowing money from a bank or issuing bonds. The investors become shareholders and have a stake in the company's success.