Docstoc

Guide to various forms of equity

Document Sample
Guide to various forms of equity Powered By Docstoc
					Equity capital is investment finance that allows companies to acquire equity shares in order to
participate well in their business operations, thus adding value to the entire business. Unlike
debt, i.e loans, equity is not reimbursed, a holding company will make money if the shares have
been acquired by reselling at a higher price.

So-called private equity firms usually acquire a majority stake or generate qualified minorities in
companies that create value. Qualified minorities include full participation and veto rights.

On commencement of a business venture, proprietors inject funding into the business to fund
assets. In turn this produces financial obligation on the business in the form of capital since the
commercial enterprise is a separate entity from its proprietors.

Business enterprises can be regarded to be the sum of liabilities and assets from an accounting
perspective, the owner's interest in the venture is deemed to rest in a favorable balance after
liabilities have been accounted for.

Private equity firms buy companies with equity and debt capital such as bank loans. The future
return of the loans from corporate profits is expected to eventually purchase the company only
by equity.

Venture capital firms are a special type of investment entities that assist new companies build
business capacity in the early stages. Venture capital firms normally take interest in growth
oriented projects or companies with high earnings potential. But still the risk that the venture
capital company takes is usually high, as promising projects could still fail.

Equity investments usually pertain to the purchasing and keeping of shares on a stock market
by individuals or firms in expectation of gains from dividends as the economic value of the stock
grows. It can also relate to the acquisition of equity in a private company which is unlisted or a
startup as with the case with venture capital firms.

Investments placed in small firms are known as venture capital investing, and is inherently risky
compared to investment in listed or established entities.

The venture capital provider expects that in addition to a profit sharing, there would be an
appreciation of its share in the business, which it would sell after a couple of years.

On the other hand, the equities controlled by private individuals are often obtained via mutual
funds or other types of pooled investment channels. The mutual funds are generally overseen
by large fund management houses. These holdings enable individual investors to get the
diversification of funds and to benefit from the expertise of professional fund managers.

				
DOCUMENT INFO
Shared By:
Tags:
Stats:
views:7
posted:1/23/2013
language:
pages:1