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Equity Finance or Equity financing is the process of raising capital through the sale of shares. Equity financing is the method of raising capital by selling company stock to investors, In return for the investment, the shareholders receive ownership interests in the company. Equity Finance essentially refers to the sale of part ownership interest to raise funds for business purposes. Equity financing spans a wide range of activities in scale and scope, from a few thousand Rupees raised by an entrepreneur from friends and family, to giant initial public offerings (IPOs) running into the billions. While the term Equity Finance is generally associated with financings by public companies listed on the Stock Exchange, it includes financings by private companies as well.
Equity financing involves not just the sale of common equity, but also the sale of other equity or quasi-equity instruments such as preferred stock, convertible preferred stock and equity units that include common shares and warrants.
Equity financing process is defined and governed by regulation imposed by a local or national securities authority. Such regulation is primarily designed to protect the investing public from unscrupulous operators who may raise funds from unsuspecting investors and disappear with the financing proceeds. An equity financing is therefore generally accompanied by an offering memorandum or prospectus, which contains a great deal of information that should help the investor make an informed decision about the merits of the financing. Such information includes the company’s activities, details on its officers and directors, use of financing proceeds, risk factors, financial statements and so on.