Financial systems are the lifeblood of a company. Companies’ survival and growth are determined by this factor. Public limited companies can easily raise funds by offering securities to the public without limitation, but private firms have a more difficult time raising funds since public invitations are prohibited and the number of members is limited to 200. We will discuss the various ways a private limited company can raise funds in this article.
Top 3 Conventional Types of Funding Options Available to Private Companies
Undertaking Additional Capital Issues
A business with share capital can raise its subscribed share capital at any time by issuing more shares. The shares can be offered in several different ways under section 62 of the Companies Act 2013:
- Rights Issue
- ESOP
- Private Placement
Through Loans and Debentures
In the first place, unsecured loans can be obtained from directors and their relatives at interest-free or at interest-bearing rates. Loans from banks are also common. These funds, on the other hand, are raised over a predetermined long-term period at a fixed rate of interest. A resolution must be passed by the board if it wishes to borrow money from any bank.
Alternatively, according to Section 71 of the Companies Act, 2013, a private limited company can also issue bonds that can be converted into shares, either in whole or in part, at redemption. A special resolution must be passed by a fully convened general meeting of the company’s shareholders before debentures with conversion options can be issued.
Through Angel Investors
Angel investors provide money in exchange for ownership shares in a company. A company seeking capital will need a business plan, financial statements, and an exit strategy since most angel investors are private equity experts. Angel investors tend to invest in companies that have a high potential for exponential growth as well as a desire to go public down the road.
Final Thoughts
Compared to public companies, private enterprises have more options for raising finance. Despite the fact that most of these options are vastly different from one another, it’s important to determine which is best for your company and will allow it to grow profitably while remaining true to its mission.
The expert corporate soldiers at Vakilsearch can greatly assist in achieving this goal. Our team of corporate veterans can help your private limited company raise finance in the most efficient manner, enabling both debt and equity to be leveraged in the most beneficial manner to strengthen your company’s profitability and sustainability.