Equity financing at the OHG
The general partnership (OHG) as a private company is not for sale able shares or spend even shares. Who participates in a Supreme Court, shall be liable automatically unlimited , as with partnerships usual. Therefore it can happen that you have founded and built your company as a general partnership, but if you want to be attractive for investments, you will probably come to the point where you will convert the company into a GmbH to make it easier for potential investors to get involved in the company.
Equity financing at the AG
In the case of stock corporations (AG), participation takes place through the purchase of shares or through the issue of new, so-called “young” shares. It should always be noted that the issue of new shares dilutes the investment for the existing shareholders if they are not given appropriate preferential treatment. It should also be mentioned that it is apart from the shares that have a voting right in the general meeting, it is also possible to issue shares that do not have voting rights. This means that these shares do not offer any active flexibility, but are typically offered in return for more attractive conditions. A special feature when issuing new shares is always a premium or discount. Usually there is a so-called agio, which means that the shares are issued above the nominal value. The capital is then divided accordingly into capital reserves and subscribed capital , whereby the capital reserves must be recorded as such in the balance sheet.
Equity financing in the cooperative
For cooperatives , raising equity also plays a relevant role. According to WHOLEVEHICLES.COM, the legal regulations offer some leeway, for example the use of hybrid forms of financing is also possible. Accordingly, there are more points of contact than one would generally expect from cooperatives.
Equity financing for startups
With start-ups in particular, there are many ways to organize investments. The team of founders initially holds the shares, but perhaps the first employees will be attracted with shares if it is not yet possible to pay attractive salaries. In addition, employee participation programs can be set up in such a way that, for example, there are pre-emptive rights or shares when goals are achieved be transmitted. In any case, make sure to make all of these option programs as clear and simple as possible. Because what looks like child’s play with three or four employees can turn into an organizational catastrophe a few years later, when there are perhaps significantly more employees and investors available. Therefore: Work for Equity is a good option, but it must be based on very clear agreements.
Advantages and disadvantages of equity financing
Since the possibilities of equity financing are so wide, depending on the phase of the company, it is difficult to make general statements about this. Equity financing is often the absolute foundation for start-ups. On the one hand, investments can help finance growth , on the other hand, shares can be transferred to employees in order to motivate them and low salaries balance. At the same time, it is always a shame when you have to give up shares in your own company. After all, you hope to be able to sell these shares at a high price later on. In addition, you have to have enough shares to be able to carry out further financing rounds so that you can still raise fresh capital later. All in all, a case-by-case assessment is always necessary to clarify whether equity financing should be the first choice for your specific situation, or whether there are other options that you should consider.
Equity financing options
How exactly equity financing is designed depends ideally on you – because if your company is doing well, you are in a corresponding negotiating position to choose which form of financing and which investments are attractive to you or not. Some practical examples of how you can get funding are:
- KFW: This is probably one of the most popular forms of financing for young, small companies that have to cover capital requirements but have not (yet) received any capital from banks and professional investors.
- IPO: Going public with your company is an unbelievable success, but it also comes with extensive obligations. This option is particularly interesting for fast-growing, larger start-ups.
- OeKB: In Austria, OeKB ensures that capital requirements are covered on attractive terms. In this context, inexpensive financing is regularly given, which is usually clustered thematically, e.g. for export-oriented companies in a certain industry, etc.
- Other possibilities: Evil is often referred to as “Family, Friends and Fools” as the first point of contact for financing – and this saying is certainly justified. If you want to start a company or are just starting out, people who trust in your expertise may also support you financially. Just be aware that you will then have a very special responsibility to repay the invested capital with an appropriate interest rate.
Conclusion – equity financing
When raising capital , there always are difficult decisions. Especially when shares in the company may even be awarded for this, you should think twice about whether you really want this and what assessment you are willing to do. Which form of financing suits best is very individual , there are pros and cons for all options. It is important that you have your finances under control so that you can make financing and investment decisions never have to meet spontaneously and quickly because you are already in a critical situation. As long as your company is financially sound, it is up to you to choose the ideal financing and to only award shares at an attractive valuation.