The best approach to ensure that you acquire suitable financing from professional fundraising choices at the proper moment is to incorporate a private limited business.
A company’s financial system is its lifeblood. It is the most crucial factor that determines a company’s survival and growth. A public limited business can easily generate funds by offering securities to the public without limitation, but it is more difficult for a private firm to raise funds because public invitations are prohibited and the number of members cannot exceed two hundred. In this article, we will dwell on the various ways in which a private limited company can raise finance.
Top 3 Conventional Types of Funding Options Available to Private Companies
By Undertaking Additional Capital Issuance
According to section 62 of the Companies Act 2013, if a business with a share capital wishes to raise its subscribed share capital at any moment, it can do so by issuing more shares, which can be offered in the following ways:
- Rights Issue
- ESOP
- Private Placement
Through Loans and Debentures
First of all, a company can receive interest-free or interest-bearing unsecured loans from directors and their relatives. It is also typical to borrow funds from banks. These funds, on the other hand, are raised at a fixed interest rate over a predetermined long term period. To borrow the money from any bank, the board must pass a resolution.
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A private limited company can also issue debentures with the option to convert them into shares, either entirely or partially, at the time of redemption, according to Section 71 of the Companies Act, 2013. Provided, however, that the issue of debentures with a conversion option must be approved by a special resolution passed by the company’s shareholders at a fully convened general meeting.
Through Angel Investors
An angel investor is a high-net-worth individual who lends money in exchange for a share of the company’s ownership. Most angel investors are private equity experts, which means that a company seeking capital must have up-to-date financial statements, a business plan, and a plausible exit strategy. Angel investors usually only engage with companies that have a high potential for exponential growth and a desire to go public in the future.
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Final Thoughts
When it comes to raising finance, private enterprises have more options than public companies. The bulk of these alternatives are majorly distinct from one another, so it’s essential to figure out which one is best for your company and will allow it to expand profitably while being true to your mission.
To meet this end, the expert corporate soldiers at Vakilsearch can be of great help. Our team of corporate veterans can help your private limited company raise finance in the perfect mixture allowing you to leverage debt and equity in the most efficient manner that is sure to enhance your corporation’s profitability and sustainability.
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