Understanding Equity Financing and Business Structures

Equity Financing

Raising capital by selling company shares to investors.

Access to Expertise

Investors provide valuable skills and networks.

Increased Credibility

Reputable investors enhance company's market trust.

Loss of Control

Selling shares reduces ownership and decision-making power.

Dilution of Profits

Shared profits reduce individual returns among stakeholders.

Potential for Conflict

Differences in vision may cause disputes with investors.

Clear Terms

Define investment terms to prevent misunderstandings.

Impact on Relationships

Financial dealings can affect personal relationships.

Exit Strategy

Plan for repayment or returns to investors.

Character

Trustworthiness and reliability of the borrower.

Capacity

Borrower's ability to repay based on income.

Capital

Borrower's net worth and financial resources.

Collateral

Assets securing the loan in case of default.

Conditions

Economic environment and loan-specific terms.

Debt Service

Total cash required for debt repayment.

Charge Account

Credit account deferring payment for purchases.

Venture Capitalists

Investors funding startups for equity stakes.

Angel Investors

Individuals providing early-stage capital to startups.

Vendor Financing

Supplier credit allowing deferred payment for goods.

Float in Vendor Financing

Period between receiving goods and payment due.

Risk Tolerance

Willingness to accept financial risk in investments.

Tax Abatement

Legal reduction in tax obligations.

Tax Credit

Direct reduction of tax liability.

Peer-to-Peer Lending

Crowdfunding matching individual lenders with borrowers.

Crowdfunding

Capital raised from many individuals for ventures.

Promissory Note

Written promise to pay a specific sum.

Principal

Amount of loan before interest and fees.

Leveraged

Financed primarily through debt rather than equity.

Sole Proprietorship

Business owned by one person with unlimited liability.

Partnership

Business owned by two or more individuals.

Corporations

Legal entities composed of stockholders.

Limited Partnership

Partnership with general and limited partners.

C Corporation

Standard corporation selling shares to public.

Subchapter S Corporation

Corporation limited to 100 stockholders.

Professional Corporation

Corporation for specific professions like law.

Nonprofit Corporation

Entity not for shareholder financial gain.

Public Benefit Corporation

Company with civic or environmental goals.

Limited Liability Company (LLC)

Hybrid entity offering liability protection to owners.

Series LLC

LLC providing liability protection across multiple series.

Contract

Enforceable agreement between two parties.

Contingency

Condition that must be met for an event.

Boilerplate Language

Standardized text in legal agreements.

Letter of Agreement

Document formalizing an oral understanding in writing.

Signatory

Individual who signs a legal contract.

Breach of Contract

Failure to perform as agreed in a contract.

Statute of Limitations

Time limit for taking legal action.

Small Claims Court

Court for resolving minor monetary disputes.

arbitration

a method of dispute resolution using an arbitrator to act as the decision maker rather than going to court

bankruptcy

the legal processes in which an individual or business declares the inability or impaired ability to pay debts as they come due, entrepreneurs may be faced with the decision of liquidation of reorganization

Service mark

a design that identifies and distinguishes the source of a service rather than a product

Copyright

A copyright is the form of legal protection offered under U.S. law to the authors of 'original works of authorship,' including literary, dramatic, musical, and artistic works.

electronic rights

the right to reproduce someone's work online

patent

an exclusive right, granted by the government, to produce, use, and sell an invention or process.

public domain

property rights available to the public rather than held by an individual.

insurance

a system of protection for payment provided by insurance companies to reimburse individuals and organizations when their property or wealth has been damaged, destroyed, or lost.

premium

the cost of insurance.

deductible

the amount of loss or damage a policyholder covers before the insurer pays on a claim.

Liability insurance

which covers the cost of injuries to a customer or damage to property on a business's premises—for example, a customer slipping and falling in your store.

Product liability insurance

which covers the risk of your product harming someone.

Business income insurance

which is also known as 'business interruption' insurance.

Errors and omissions insurance

is designed to cover you in the event that you have overlooked something and a customer is harmed.

Sole proprietorship

A business owned by one person who has unlimited liability and unlimited rights to profits.

Advantages of Sole proprietorship

ease of start, simplicity of registration, fewer decision making, greater rights to profits

Disadvantages of Sole proprietorship

difficult fund raising, significant time obligations and responsibility, unlimited personal liability

Operations

a set of actions that produce goods and services

Supply chain management (SCM)

the management of sourcing producing production and logistics to go from raw materials to end customers across multiple intermediate steps

Safety stock

the amount of inventory or raw materials or work in progress that is kept to guarantee service levels.

Safety stock formula

Safety stock = (maximum daily sales x maximum lead time) - (average daily sales x average lead time).

Reorder point (ROP)

the level at which materials need to be ordered again.

Economic order quantity (EOQ)

the amount of inventory to order that will equal the minimum total ordering and holding cost.

Enterprise resource planning

is the integrated management of core business processes, such as human resources, finance, supply chain, manufacturing, and procurement.

Location decision

common considerations, access for customers, access for suppliers, climate and geography, convenience, cost of facilities, demographics.

Benchmarking

the comparison of a company's performance against that of companies in the same industry, or against best practices, standards, or certification criteria.

Total quality management

The quality assurance methodology striving for strategic advantage through quality.

Continuous improvement

always identifying and implementing changes throughout an organization to focus on the requirements of internal and external customers.