2.1 Sources of company finance

Sources of company finance include equity capital, debt capital, and retained earnings. In this section you will look at share capital in the form of ordinary and preference shares, and debt capital in the form of bank loans and debt securities such as debentures (corporate bonds).

Private limited companies, public limited companies and listed public limited companies have different options for raising finance.

• Private limited liability companies must obtain their financing privately. This means that most private companies issue shares to a number of people within a relatively small circle and borrow money from the same people or from banks.
• Public limited liability companies may advertise their shares to the public. Potentially, this makes it easier to attract new shareholders and issue additional shares.
• Listed companies issue shares and long-term debt securities on capital markets and sell short-term debt securities on financial markets. Listed companies are therefore able to attract capital and borrowings from a larger number of investors.