Sample Essay

The advantages of equity financing pertain to the facts that the in case of dissolution, the company does not have to pay back the equity contribution. When acquiring equity financing, the company does not have to lend assets as collateral which increases the position of the company in the books while making the financial position of the company favorable. Aside form this the company also does not have to make debt payments therefore increasing the availability of cash and funds at the company.

The disadvantages that can be attributed to equity financing pertain to the fact that equity financing required ownership of the business to be shared with other while the profit generated is also shared between all the shareholders through dividends. These new shareholders also have control over the operations of the company and have a say in the way it operates and runs business. Moreover the company cannot get tax deductions on the dividend payment it makes which raises the issue of higher tax being paid by the company. “If your business has equity then it will be looked on more favorably by investors, lenders and the Revenue Commissioners. A business that has secured equity will most likely have a sound plan and past success, which could convince a lender to give you a loan.” (‘Pros and Cons of Debt and Equity Financing’)

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