Other
Company Law: Debt and Equity
- Module
- Company Law
- Institution
- Kings College London (KCL)
Comprehensive notes on Company Law in the UK: Debt and Equity.
[Show more]
Content preview
TOPIC 8COMPANY LAW
8. PART 1 DEBT & EQUITY CAPITAL:
1. INTRODUCTION TO CORPORATE FINANCE:
WHY DO COMPANIES NEED FINANCE?
A company may need money for a variety of reasons:
® They may need capital in order to pay their suppliers, employees’ wages
or outstanding bills.
® They may need funds for a particular project or transaction.
® They may need a one-off sum to resolve a financial crisis.
â
SOURCES OF FINANCING:
How do companies obtain this money?
Most companies raise finance through a combination of debt finance and equity
finance (traditional forms of financing).
1. DEBT FINANCE: 2. EQUITY FINANCE: 3. RETAINED
EARNINGS:
_ DEBT FINANCE: _ EQUITY FINANCE: _ RETAINED
where a company where a company EARNINGS: where a
raises money by raises money by company uses profits
borrowing money issuing shares. This that have not been
from a lender. They can be done in the spent or repaid to
are required to pay following ways: investors of the
this money back company.
later, with interest. ® ORDINARY
® BANK LOANS ® PREFERENCE
® BONDS ® REDEEMABLE
® TRADE ® CONVERTIBLE
CREDITORS SECURITIES
® ASSET AND
TRADE
FINANCING
These can either be
secured or
unsecured.
, TOPIC 8
COMPANY LAW
As well as the above, there are also more non-traditional forms of financing:
4. CROWDFUNDING: where a company raises money by collecting money from
a large number of people on online platforms. This is an innovative way of
raising funds for new projects, businesses and ideas, particularly for startup
companies and growing businesses.
o Crowdfunding works by fundraisers launching an online crowdfunding
platform (a website), where they collect financial pledges. These
platforms will charge fundraisers a fee if the campaign is successful.
P This can be effective because it helps to cultivate an online community,
leading to the company gaining access to new customers.
P Further, crowdfunding platforms are expected to be secure and easy to
use.
P Additionally, these platforms operate an all-or-nothing funding model:
this means that if the fundraiser reaches its target, they obtain all the
money; if they do not, everybody who contributed will get their money
back – this means are no hard feelings nor any financial loss.
o There are three main types of crowdfunding:
1. PEER-TO-PEER LENDING: where the crowd lends money to the company, on
the understanding that the company will repay the money back to them, with
interest.
! This is similar to traditional bank loans; except in this case, the company is
borrowing from investors.
2. EQUITY CROWDFUNDING: where a stake in the business is sold to a
number of investors, in return for their investments.
! This is similar to how stock is bought/sold on a stock exchange.
3. REWARDS-BASED CROWDFUNDING: where individuals donate to a
project / business, with the expectation that they will receive a non-financial
reward in return (e.g. goods or services) at a later stage.
o There are also some minor forms of crowdfunding: donation-based
crowdfunding (individuals donate small amounts to meet the target
of a charitable project, but not receive any financial/material return);
profit-sharing (businesses share future profits with the crowd, in
return for their present funds); debt-securities crowdfunding
(individuals invest in a debt security issued by the company, e.g. a
bond); and hybrid models (businesses combine elements of more
than one crowdfunding type).
â
HOW DO COMPANIES DETERMINE THEIR CORPORATE FINANCING CHOICES?
Corporate financing choices tend to be largely commercial decisions, based on
each individual company.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller sirjacktan. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £7.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
64438 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now