What is Equity Capital?
Equity Capital is the part of funds contributed by the shareholders of the company in exchange for ownership. Equity Capital can be in the form of ordinary shares or preferred shares.
Equity capital is a very important area in Corporate Finance and we discuss the following topics here -
- What are the types of internal sources of finance?
- What is a private placement of shares?
- What is the difference between the rights issue and bonus shares?
- What is the difference between short term and long term capital gains
Private Placement of Shares
Private placement of shares is issuance of securities of a Company to a selected individual, group of individuals, corporates or group of corporates.
Right Issue vs Bonus Issue
Rights issue is an additional issue of shares by a company for its existing shareholders. Whereas The offering of bonus shares can be positive for the shareholders and thus positively impact the share price of the company offering the shares.
In simple terms, when a company taps into the existing shareholders for additional equity capital and issue shares at a discount particularly for these existing shareholders, we call it rights issue shares.
Short Term Vs Long Term Capital Gains
Short-term capital gain can be earned on short-term assets and long-term capital gain can be earned on long-term assets.
Stock vs Real Estate Investment
Stock refers to share in the ownership of the company which represents a claim on the assets and earnings of the company. Whereas Real estate refers to property made up of land and buildings on it including the natural resources and associated components such as water and minerals.
Fixed capital refers to the investment made by the business for acquiring long-term assets.
Internal Sources of Finance
Internal sources of finance are the sources of funds inside the business that are readily available.
Investment Vs Savings
An investment is an asset or item acquired with the goal of generating income or appreciation. Whereas Savings is the amount of money left over after spending from disposable income.