A Private Company cannot offer up shares to the General public to raise capital for itself. This is only allowed for public companies
To raise capital for the business, they can only take investments from the members of the company, family and friends.
Therefore capital has to be raised via Private Arrangements
There are Three Forms of Raising Funds
- Loans and advances (From Members, Directors, Relatives of Directors or Another Company)
- Investment by way of debentures (Convertible or Non-Convertible Debentures)
- Offering Equity Shares
Points to keep in mind while Raising Funds by offering Equity Shares
Management of the company
The investor has the option of being involved in the day to day operations of the company. The extent of involvement usually lies upon the amount of investment on the part of the investor. But this does not mean that the investor has to be involved in the management of the company. If the investor is purely invested in the profits and has no interest in managing the company, he or she has no obligation to do so.
Control of the company
Control directly corresponds to the ratio of the shares held by each person investing (proportion of Stake/Share Holding). Higher the ratio, more control the said investor has in the decision making within the company.
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