Reading time: 3 minutes

Have you started your first business? Are you a serial entrepreneur? Is your business growing quickly, and now you need more funding to support this growth? Do you want to hire new staff and purchase new equipment? Are you keen to fund an extensive marketing and promotion campaign? This article is one of a five-part series on how to finance your business. The article focuses on issuing shares in your company – a method known as equity finance.

What is Equity Finance?

Equity finance is a way to generate funding for your business without going into debt, is to issue shares to investors. You can issue different types of shares, for example, ordinary shares or preference shares.

There are strict rules on issuing equity. There is a suite of rules and requirements for a listed public company, and a suite of rules and requirements for a private company or an unlisted public company. If you have a proprietary (private) company, you can only offer your shares to existing shareholders, employees and certain classes of investors. Please seek legal advice on this to avoid breaching the law. Ordinary shares are common shares, usually with one vote for each share. With preference shares, the investors may or may not have voting rights, but they may have preferential rights to dividends and/or a liquidation preference if the business is sold. This means they will be the first ones to be repaid their investment if you sell your business, even before yourself and your employees. They may negotiate a multiple, for example, they receive twice their investment back.

The main advantage of equity finance is that by issuing shares to investors, you may avoid taking on debt. This means that your revenue can be used to grow the business, as you are not required to pay the investment back. You share the risk of your business with the investors.

The main disadvantage of equity finance is that you are sharing the value and ownership of your business with the other shareholders. They will negotiate investment terms. They will likely negotiate what oversight and control they have, and impose requirements around the sale of shares and exit.

Conclusion

Is equity finance right for you? It may be an excellent option to enable you to bring in wise investors who can help you grow your business. You are, however, sharing ownership and control, which is a significant issue to consider.

The terms are crucial. You need a shareholders agreement and to comply with legal and ASIC requirements for issuing shares. LegalVision can assist.

Please seek legal advice to help you create and negotiate the shareholders agreement. Please also ensure that you properly comply with the company secretarial and ASIC requirements to issue the shares.

LegalVision can help create or review your shareholders agreement; to help put you in a strong position and to advise you on the issues that investors raise. LegalVision can help with the company secretarial and ASIC requirements too.

Next steps

Can LegalVision assist you with your equity capital raising? LegalVision provides businesses and individuals with tailored online legal advice, including drafting legal agreements. We have capital raising lawyers with local and international experience, and with large and small business experience. We will advise and help protect you. Call LegalVision on 1300 544 755.

Webinars

How to Recover Unpaid Invoices

Thursday 13 May | 11:00 - 11:45am

Online
What do you do if your customers don't pay your invoices? Attend this webinar to learn about how to recover unpaid invoices.
Register Now

Trade Marks 101

Thursday 17 June | 11:00 - 11:45am

Online
Your trade mark is one of the most valuable assets of your business. It is therefore crucial to understand how to protect your trade mark, avoid disputes, and prevent competitors from infringing on your rights.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • 2020 Excellence in Technology & Innovation – Finalist – Australasian Law Awards 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice – Winner – Australasian Lawyer 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer