How To Raise Fund For The Company?
Shares are stock that can be issued to investors to help companies to raise funds.
You can issue and sell your shares at any time with the price changes due to its demand for it and the value of the company that originally issued it.
Advantage of issuing more shares
A company can raise capital by taking on money from venture capital firms or taking out business loans, but selling stock is going to be a much more cost effective and pain-free way of raising funds because there will be no interest to pay on the capital they raise.
Company will not need to repay the capital unless there is a special clause in the sales and purchase agreement.
When a company issues shares, it makes the gearing ratio more attractive and trustworthy. Issuing shares in the long term allows the company to avoid debt and high interest payments of above 5.5% for SME micro-loan and up to 10% for unsecured loan.
All shares must be issued according to the constitution and approved in general meeting by majority of the company shareholders. Once the share is issued, the company share is diluted.
Disadvantage of issuing more shares
Issuing of share means that more investors will be sharing the same pie of profit.
The company’s original owners will be the main ones to suffer because they will be losing much of the profit, they would have earned through revenues otherwise. Some core founders will see all their diluted and their hard work and effort is sold off.
Issuing shares to investors means that they become the owners of your company. If their total number of shares is more than your shares, they may disagree with your management style and decision. This will affect the direction of the company because some investors do not have the knowledge in that industry.
Generally, the best way to structure the share as follow.
- Ordinary paid up capital where each share has one vote at the general meeting, the right to dividends and the right to claim the remaining assets when the company is wound up.
- Preference paid up share capital where preference shareholders are given special right over ordinary shareholders with respect to dividend payments. Some preference shareholders may not have voting rights and do not have the right in general meetings to vote.
- Difference types of ordinary share and preference share can be issued in a single company. A company can choose to create different classes of shares with each offering different rights and privileges to shareholders.
- Redeemable shareholder allows the company to buy back the share at a future date at a pre-determined price.
In order to prepare the right corporate structure for companies, EBOS works with companies to plan and ensure that all compliance issue is covered before, during and after issuing of share capital. We have resources to help you manage your dream of expanding your business and building a legacy.