Types of Share Capital

When you’re starting a business, one of the first things you need to do is figure out what type of share capital you use. There are a few different types of share capital, and each has its benefits and drawbacks. In this article, we’ll see the four most common types of share capital: common stock, preferred stock, convertible debt, and equity crowdfunding. We’ll also look at what types of share capital of a company they are looking for.

What is Share Capital?

Share capital refers to any money that is raised by a company for it to operate. It can also refer to the value of shares issued by a company, but this is not as common. Share capital can be used in many different ways, but most companies use it to finance their operations or expand their business. For example, a business may use share capital to buy new equipment or pay off debt. In other cases, it can be used as collateral for loans from banks and other financial institutions.

Types of Share Capital with Examples

When it comes to investing in a company, investors usually look for one or more types of share capital. These include:

• Common stock
• Preferred stock
• Convertible debentures
• Equity crowdfunding

Common Stock

Common stock is the most common type of share capital, and it usually gives investors the most voting power. In most cases, shareholders can vote on important company decisions, such as who will be appointed to the board of directors or whether the company should declare bankruptcy. They also have a right to receive dividends if the company makes a profit. However, they typically do not have ownership rights if the company is sold or liquidated.

Preferred Stock

Preferred stock is similar to common stock also known as preferential shares, but it comes with a few key differences. For starters, preferred shareholders typically have priority when it comes to receiving dividends. It means that they will get paid before common shareholders even if the company is not doing well financially. In addition, preferred shareholders usually have more voting power than common stockholders do. For example, if the company has two classes of shares (common and preferred), then one class may get to vote on who gets appointed as CEO while the other class does not.

Convertible Debentures

Convertible debt is a type of share capital that allows investors to convert their investment into equity at any time. It is beneficial for start-up companies because it gives them flexibility when raising funds from investors without worrying about giving up any ownership rights in exchange for cash upfront. However, this also means there’s no guarantee that you’ll see returns on your investment if things don’t go well with business operations or financial projections.

Equity Crowdfunding

Equity crowdfunding is a relatively new type of share capital that allows investors to buy shares in a company through an online portal. It can be a great option for businesses that have a difficult time raising money from traditional sources, such as banks and venture capitalists. Equity crowdfunding also comes with a few key benefits, such as the ability to attract smaller investments from more people. However, it’s important to note that there is some risk involved since you’re investing in a company that has not been tested or proven yet.

Benefits Of Share Capital

There are a few benefits of share capital that businesses should be aware of. These include:

1. Flexibility: One of the best things about share capital is that it gives companies flexibility when it comes to raising money. It is especially true for convertible debt and equity crowdfunding, which allows businesses to raise money without giving up any ownership rights. In addition, the share capital can also be used as collateral for loans from banks and other financial institutions.
2. Voting Rights: Shareholders typically have voting rights on important company decisions, such as who gets appointed to the board of directors or whether the company should declare bankruptcy. It can give investors a say in how the company is run and help protect their investment if things go wrong.
3. Dividends: When a company makes a profit, it can choose to pay out dividends to its shareholders. It is a great way for investors to make money off their investment and can be especially lucrative if the company is doing well financially.
4. Protection: Investing in share capital can help protect your investment from things such as bankruptcy or liquidation. In most cases, shareholders are at the front of the line when it comes to receiving payments from the company. It means they are more likely to get paid back even if things go wrong.

Conclusion

There are a few different types of share capital that investors will look for when considering an investment. Preference shares offer the company some protection against a hostile takeover, and also give the holder a higher dividend payout than common shares. Convertible preferred shares can be converted into common shares at a later date if the company is doing well, which gives the investor more potential for gain. And finally, warrants allow the investor to buy more shares in the company at a fixed price, giving them a chance to increase their ownership stake over time. By understanding these different types of share capital, you can better assess whether or not an investment is right for you.