The shares or stocks of a company can also be termed as “equity”. A scheme where investments are made solely on stocks is called Equity funding scheme. Thus the investors get a share of the company itself through equity funds. The ownership can be obtained publicly through stock market. In the case of Private equity, the investments can be made directly by buying shares from the company. Startup companies raise capital for their business mainly by selling their stocks through equity funds.
How does equity funding work?
The companies registered with the stock market may share their dividends and relative capital gain with their shareholders every year. Equity funds are highly dependent on a company’s performance. An investor who has major shares of a company has the right to control the company. Hence the founder of the company always holds maximum shares and sells only the remaining to the shareholders. Thus the owner of the company will not lose control over it.
How to start Equity funding
- Have a clear idea of the stock market. Knowing how shares are traded is essential as you have the sole responsibility for the shares you wish to hold.
- One important step towards buying shares in equity is to diversify your shares. Rather than investing all fund in one single company, investments can be made by buying shares in different companies.
- Knowing the inside out of a company will help us understand its financial structure, future value, etc giving us a clear aspect towards making investments in it.
- Know that equity investments may be profitable for investors who invest in a company for long term.
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