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Equity Finance

Established businesses that need to raise capital, whether for financing a new project or an expansion on their business, sometimes turn to equity finance. Equity finance is selling stocks or shares of the company to the general public. This is a move that should be carefully thought out as equity finance could drastically change the way the business is run.

The Stock Exchange

            The most popular form of equity finance is through the London Stock Exchange. When taking this route, be prepared for lots of paperwork called an offering memorandum, or prospectus. The UK Listing Authority will need to see proof of how your business is run, and whether you are an honest business. It will need to know your finances and the exact nature of your business. Basically, from that point on, your business and everything about your business will be public knowledge. Once satisfied, the UK Listing Authority will grant you approval to list on the stock exchange.
            In order to raise £2 million, you could offer 1 million shares at £2 each. That would be a quick way to raise £2 million, but now you would have 1 million investors that would have a say in how you run your company. You are now responsible in keeping those investors content in the way you run your company. Regular meetings with the shareholders must be held and the shareholders can give forth any grievances they may have about the company management. In extreme circumstances, should all shareholders be unsatisfied with your performance as director of the company, they could vote against you and have you removed from your position.
            In addition to keeping your shareholders satisfied, you must also keep the market informed. There are annual and interim returns that are regular scheduled times to report to the market. Should any changes occur within your company before those scheduled appointments, you have the responsibility to announce those changes to the market. Also, if you want to buy back the shares at a later date, there are restrictions as to how you can go about that. Restrictions are placed on the number of shares that directors can buy and sell of their own company. So when you list your company on the stock market, you are giving up a lot of the power you once had in your business. Keeping this in mind, many businesses use this form of financing as a last resort.

Alternative Investment Market

            This is a new form of equity financing that is separate from the full London Stock Exchange. Smaller businesses see this option as more appealing since the regulations are much less complicated and less strict than on the full London Stock Exchange. This makes legal fees and procedures much less expensive.                           

 
 
     
 

 

 
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