The Use of Common Stock in Venture Capital Transactions
by:
Dave Lavinsky
Once
raising capital for a business venture, a institution can either raise financial obligation capital, equity capital or a combination of the two. Financial obligation capital is money loaned to the institution at an in agreement interest rate for a fixed time period. Conversely, equity capital is money invested with by owners (shareholders) for use in business operations that need not be repaid. Combinations include convertible securities which may be financial obligation that can be regenerate
into equity at several point in the future.
The simplest form of equity capital is common stock. Common stock has many an identifying
factors as follows:
• Common stock is not convertible into another type of safety • Each share enjoys one vote
• Dividends are due without limit but only once
declared by the board of directors
• In liquidation, common stock holders are the last priority to which to distribute assets
In venture capital transactions, there may be two types of common stock which are issued. The 1st is Class A common stock, which is like preferred stock without the special balloting rights which several statutes require in shares labeled ""preferred."" A second type of common stock is junior common stock. Spell this type of stock is not used really frequently, it allows companies to get cheap stock into the hands of key employees at least tax cost.
Determining what type of capital to raise and how to structure the funding group action
is of critical importance to growing ventures. As such, it is crucial to understand the key terms and consult the appropriate legal and business advisors once
embarking on the capital-raising process.
Just about the author: GT Business Plans has developed over 200 business plans for clients that have put together raised over $750 million in financing, launched many
new product and service lines and gained competitive advantage and market share. GT Business Plans is the sister site of GT Venture Capital
