The general practice of obtaining money through the selling of shares is known as equity financing. Companies raise money because they can need it to pay expenses in the short term or because they have a long-term objective and need money to invest in their expansion. A firm effectively sells ownership in their business when it sells shares in exchange for money.
Many different forms of equity funding exist, such as an entrepreneur’s friends and family, investors, or an initial public offering (IPO) (IPO). Private businesses that want to issue new shares of stock to the public must first go through an IPO procedure. A business can raise funds from the general public by issuing public shares. Industry behemoths like Google and Meta (formerly Facebook) raised billions of dollars through initial public offerings.
Companies, particularly start-ups, use equity financing when they urgently require funds. In order to reach maturity, it is normal for businesses to employ equity financing numerous times. The private placement of stock with investors and public stock offerings are the two main forms of equity financing.Debt financing is different from equity financing in that the former entails borrowing money while the latter requires selling a piece of the company’s shares.To make sure that everything is done in accordance with legislation, national and local governments maintain a tight eye on equity funding.