Companies need capital for their growth. On the one hand, this money can be generated through income or contributions from shareholders as equity financing. On the other hand, equity can be increased through external financing. Equity financing plays an important role in raising equity capital. It can be used for different types of enterprises.

Equity financing is a specific form of equity or external financing. Equity capital is created through contributions in kind or money. These contributions can be provided by existing and new shareholders. By providing capital, the investors become co-owners of the company. They thus participate in the income of the business as shareholders or partners.

Equity financing is possible for corporations as well as for partnerships or sole proprietorships. It is important for all companies when they need equity capital to make investments.

These investments can be used to purchase new machinery or hire new employees, and in the case of joint-stock companies, to take over another company.

Example of equity financing

A company produces lemonade. The fizzy drink is very popular, which increases sales and the company needs further capital to expand its production plant.

An investor recognises the attractiveness of the company and provides capital to increase the equity ratio. In return, he becomes a co-owner, for example, or receives a return on his contributed capital.

Equity financing is also possible through tangible assets. A manufacturer of bottling plants approaches the lemonade producer. He offers him the use of a plant free of charge. In return, he also receives a return.

In both cases, the borrower of capital has profited from the investment. The capital provider, investor or other company also benefits from the return received.

Investment company as capital provider

An investment company is a company whose aim is to earn money from participating in other companies, just like traders who use https://exnesslatam.com/pt-br/conta-de-demonstra-o/. To this end, an investment company participates in raising equity in companies.

In doing so, the company is usually only interested in minority shareholdings. The participation can take place as a shareholder, but also as a co-partner in limited liability companies or partnerships.

The holding company differs from the holding company in that the company only holds stakes in companies. But it does not seek to convert the holdings into majorities in order to consolidate the respective companies.

Types of holding companies

•     Medium-sized investment companies play an important role in supporting medium-sized companies with outside capital.
•     Well-known European investment companies are Investor AB, Wendel, Sofina and Exor.
•     For start-ups, so-called "business angels" are important contacts for equity financing.