WHAT IS THE DIFFERENCE BETWEEN EQUITY AND DEBT FINANCING?
Equity means ownership in the business. In the case of a corporation, equity financing would include the issue of common, and sometimes preferred shares, to the shareholders in return for their investment in the corporation. The common shareholders of a corporation are its owners. They have a right to anything the corporation decides to distribute after the creditors have been paid. The common shareholders also have ultimate control of the company’s affairs since they elect the Board of Directors. Many corporations also issue preferred shares as a means of raising additional capital for the corporation. Preferred shares, in many cases, are just a form of debt giving the holders extra privileges; for example a right to fixed dividend payments. Since the dividends must be paid out of after-tax income – this often makes preferred shares less popular than debt from the corporations perspective. Preferred shares may or may not be entitled to vote and the shareholders may or may not particip
