UNIT 7 LAW 307 HOMEWORK
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Creating a start-up company
Financing a start-up company
Beverly Baxter
Post University
LAW 307 Business Organizations and Practice
Professor: Misenti
Assignment Due Date: October 17, 2022
Creating a start-up company
Starting a small business requires a lot of commitment and understanding. A lot of start-
up companies would need capital for the funding of their businesses. Choosing how to finance
your company depends on several factors such as. There are two types of options for financing,
equity, and debt financing. Equity financing, “Equity financing involves the issuance of shares of
stock of the corporation in exchange for cash or other consideration that will become corporate
capital.” Debt financing, “Debt financing refers to obtaining capital through loans to the
corporation, which must be repaid with interest upon the terms agreed to by contract between the
corporation and lender or the holder of the debt securities.”
The main advantage of equity financing is, “there
is no obligation to repay the money
acquired through it. Of course, a company's owners want it to be successful and provide the
equity investors with a good return on their investment, but without required payments or
interest charges, as is the case with debt financing.” The main advantage of debt financing is,
“First,
the
lender
has no control over your business. Once you pay the loan back, your
relationship with the financier ends. Next, the interest you pay is
tax-deductible
.1
Finally, it is
easy to forecast
expenses because loan payments do not fluctuate.
“Startups at every stage are always concerned with cash flow and revenue, of course. But
there’s a difference between making enough money to sustain the business, and making enough
to fund the major improvements that open the door to new opportunities.” If I were to finance a
start-up company, I would choose debt financing. I wouldn’t have any control over this business
and once the loan is paid back there’s no further communication with the borrower. As a start-up,
I’m not 100% sure how successful this company may or may not be and I would not want to
Creating a start-up company
chance taking equity in a company that fails. The percentage of the initial financing for equity
would be a 10% stake in the business in return for $15 million in capital. For debt financing, if
obtaining a loan from the bank, it would be in the amount of $20 million with a 5% interest rate
and must be paid back in four years.
There are different types of debt and equity to choose from. However, the ones I would
choose are. Under debt, I would choose unsecured debt which is, “
debt that does not require
collateral as security. The creditworthiness and the debtor's ability to repay are reviewed before
consideration is given. Since no collateral assignment is issued, the debtor's credit profile is the
primary factor used in determining whether to approve or deny lending.” For equity, I would
choose shareholder equity which is, “the amount that the owners of a company have invested in
their business. This includes the money they’ve directly invested and the accumulation of
income the company has earned and that has been reinvested since inception.” Shareholder
equity is important because it shows if its owners are reinvesting in their company, their
stability, growth, etc.
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Creating a start-up company
References
Schneeman, A. (2013). Law of Corporations and other business organizations (6
th
ed). Boston,
MA: Cengage Learning, P.417
https://ambassadored.vitalsource.com/reader/books/9781285401768/pageid/456
Schneeman, A. (2013). Law of Corporations and other business organizations (6
th
ed). Boston,
MA: Cengage Learning, P.440
https://ambassadored.vitalsource.com/reader/books/9781285401768/pageid/479
Maverick, J. B. (2022, April 20).
Equity Financing vs. Debt Financing: What's the Difference?
Https://www.investopedia.com.
https://www.investopedia.com/ask/answers/042215/what-are-
benefits-company-using-equity-financing-vs-debt-financing.asp
Wood, M. (December 12).
How to Choose the Best Financing Option for Your Business
.
Https://foundershield.com.
https://foundershield.com/blog/how-to-choose-the-best-financing-
option-for-your-business/
BDC. (n.d.).
Shareholders' equity
. Https://www.bdc.ca. Retrieved October 13, 2022, from
https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-
guides/glossary/shareholders-equity
Chen, J. (2022, January 13).
Debt
. Https://www.investopedia.com.
https://www.investopedia.com/terms/d/debt.asp