1, the financial risk of the enterprise is small.
There is no need to repay equity capital during the normal operation of the enterprise, and there is no financial risk of repaying principal and interest. Compared with debt capital, equity capital has fewer restrictions on financing and no special restrictions on the use of funds. In addition, enterprises can decide how much to pay investors according to their own operating conditions and performance, and the burden of capital cost is more flexible.
2. Equity financing is a good credit foundation for enterprises.
Equity capital, as the most basic capital of an enterprise, represents the capital strength of the company and is the credibility foundation for enterprises and other units to organize operations and conduct business activities.
3. Equity financing is the stable capital base of enterprises.
Equity capital has no fixed maturity and does not need to be repaid. It is the permanent capital of an enterprise and can only be repaid when the enterprise is liquidated. This is of great significance to ensure the minimum capital demand and promote the long-term sustainable and stable operation of enterprises.
Second, shortcomings.
1, which is convenient for dispersing the control rights of enterprises.
The adoption of equity financing, due to the introduction of new investors or the sale of new shares, will inevitably lead to changes in the structure of corporate control rights and disperse corporate control rights. Frequent changes in control rights will inevitably affect the personnel changes and decision-making efficiency of enterprise management and the normal operation of enterprises.
2. The burden of capital cost is heavy.
Although the burden of capital cost of equity capital is flexible, generally speaking, the cost of capital in equity finance is higher than that of debt financing.
3. The cost of information communication and disclosure is very high.
As the owner of an enterprise, investors or shareholders have the right to know the business, financial status and operating results of the enterprise. Enterprises need to strengthen the relationship management with investors through various channels and ways to protect the rights and interests of investors.
Extended data:
The characteristics of private equity financing:
Equity investment in unlisted companies is regarded as long-term investment because of poor liquidity, so investors will demand higher returns than those in the open market. There is no listed transaction, so there is no ready-made market for the transferor of a non-listed company to reach a transaction directly with the buyer. Investors who have money to invest and enterprises that need to invest must rely on personal relationships, industry associations or intermediaries to find each other.
1, with a wide range of funds.
Such as wealthy individuals, venture funds, leveraged buyout funds, strategic investors, pension funds, insurance companies, etc.
There are three main ways of return on investment: public offering, sale or merger, and reorganization of enterprise capital structure. For foreign-funded enterprises, private equity financing not only has the advantages of long investment period and increased capital.
It may also bring enterprises the professional skills needed in management, technology and market. If investors are large-scale well-known enterprises or well-known financial institutions, their fame and resources will also help to raise the price of listed stocks and improve the performance of the secondary market when enterprises go public in the future.
2. Compared with the volatile and unpredictable open market, the equity investment capital market is a more stable source of financing.
3. In the process of introducing private equity investment, competitors can be kept secret, because information disclosure is limited to investors, and it is very important not to be as public as listing.
Enterprises can choose financial investors or strategic investors to cooperate, but enterprises should understand the characteristics, advantages and disadvantages of financial investors and strategic investors, as well as their different requirements for investment targets, and choose suitable investors according to their own conditions.
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