Equity financing is provided to a company from outside with equity financing. It is an external financing and can be done by existing or new shareholders with the help of cash contributions, contributions in kind and the introduction of rights.
It is also called deposit finance. Equity financing takes place in different ways for the individual legal forms:
Sole proprietorship, OHG, KG, silent Society , GdbR and GmbH are not capable of issuing emissions. They do not have access to an organized equity market. Your shares have only little fungibility, they are difficult or impossible to sell on. In addition, the investment risk can be difficult to assess.
AG and KGaA can issue. With the stock exchange, they have an organized equity market, and their shares are highly fungible. Another advantage is that the equity is divided into small amounts, so participation is also possible with little capital.
The advantages of equity financing for a company looking for capital as well as for investors can be assessed on the basis of the following criteria:
- Cost of capital
- Shareholders' rights
- Obligations of the shareholders
The individual legal forms are subject to different legal regulations.