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Unformatted text preview: he way that businesses raise funds.
Sole traders and partnerships are only able to
raise additional capital from their own
resources or by allowing new partners to buy
into the business. Before forming a
partnership you should obtain legal, tax and
A limited liability partnership (LLP) offer the
flexibility of a partnership but with a
corporate status and limited liability.
Limited companies are able to raise equity by
issuing shares. There are, however, many
other considerations to take into account
before deciding to incorporate, such as:
Many companies require an audit and
therefore an accountant has to be
engaged and fees have to be paid
minority shareholders are able to
exercise their rights through the courts
and holders of more than 25% of the
shares are able to stop certain
there may be important tax
the importance of limited liability As the business grows, there will be a
tendency towards incorporation because
companies find it easier to raise external
finance. If you wish to remain
unincorporated you will only be able to raise
venture capital from private investors. The
large venture capital funds prefer not to
invest in unincorporated businesses. Impact Of Growth On The
Rest Of The Business
Before you decide to raise finance to expand
your business you should consider the impact
on other aspects of your business:
Do you have the managerial skills and
time to manage a bigger business?
Do you have the accounting controls
to manage a bigger business?
Are your premises, plant and
machinery and workforce operating at
or near full capacity? Impact Of Growth On Your
Carrying on a business can be extremely hard
work and time consuming. You will find that
the division between work and your private
life can become indistinct and you should:
Consider your family's attitude to your
Think about personal tax implications
Assess the security of any family
Equity investors recognise that there is a risk
attached to investing, particularly in private
companies, because the potential rewards far
exceed the returns available on alternative
forms of investment. The price at which you
will sell equity in your business will involve a
negotiation between you and the investor and
will depend on your own and the investor's
view of the risk/reward ratio of your business.
You will only be able to sell equity if your
business has the potential to do well and if it
does, to do very well. Venture capitalists are
interested in investing in businesses that expect
to double their profits every three years.
If your business is likely to grow rapidly it is
normally wise to raise equity so that the
business has greater room for manoeuvre in its
finances during the periods of expansion and to
allow you to concentrate on running the
Selling equity will help stabilise your business
and make it sufficiently robust to withstand
short-term fluctuations such as a fall in sales
caused by a recessi...
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This note was uploaded on 02/27/2013 for the course GBMT 300 taught by Professor Javierwujie during the Summer '12 term at University of Wisconsin.
- Summer '12