Raising Capital: How Corporations Do It?

In order to keep their business running, it is important for organizations to find different ways where they can be able to raise their capital. But raising their capital may be one of the most difficult task that a company has to do as it will take a lot of time and effort just to look and analyze the different sources of capital and funding. Listed below are some of the common methods used by the companies to raise their capital.

Issue of Shares. When a company has decided to issue their shares, it only means that they are inviting other investors to join their organization as a part owners of the business by buying their shares of stocks. There are two types of shares:

• Equity Shares - for these type of shares the rate of the dividend depends on the profits available and the discretion of the members of the board, which doesn't put any fixed burden on the company. Stockholders who has equity shares are also given the right to carry one vote.

• Preference Shares - the dividends for this shares are payable on a fixed rate, which depends if there is profit, which don't put compulsory burden to a company's finances but this kind of share don't give a stockholder a right to vote.

Issue of Bonds. A bond is an instrument issued by a corporation to the public in order to raise. Simply put, companies create an agreement in which they ask the public for a loan, with a promise to pay the public with interests on top of the amount they owed to the public at a specified maturity date.

Reinvestment of Profits. Big companies don't usually put all of their profit for the distribution of dividends but they put a portion of it to their cash reserves. Although in reality these reserves belong to the shareholders, it also treated as part of the ownership capital in which it also used to support the company's operation. They are often used for business acquisition, paying company debts, meet working capital requirement and replacement or update of obsolete assets.

Loan from Commercial Banks. When companies needs capital for the modernization and renovation of their asset they usually ask banks for loans. These of loans don't need any legal agreement but in these case, company's has mortgage their assets to the bank.

Trade Credit. When companies need to finance their short-term capital, one of the most common methods that they use is trade credit where they buy the assets that they need such as raw materials on credit from different suppliers. Usually suppliers provide the company's with a grant that lasts for 3 to 6 months.