What is the connection and difference between equity financing and equity financing?

Whether it is equity financing or equity financing, it is a way of enterprise financing, which will increase the liquidity of the enterprise.

The specific differences are as follows:

1.The impact on the structure of the enterprise is different. Equity financing increases the equity of business owners.

The investor may have significant influence or even control over the business; Debt financing increases the company's debt.

2 The risks are different. Equity investments are generally associated with higher risks, so the profit distribution rate at the end of the period of equity financing is generally higher than the interest rate generated by debt financing.

High. 3 Corporate income tax.

Effect. At the end of the period, the distribution of profits generated by equity investments is carried out after the income tax is withdrawn; The interest generated by debt financing is paid before the payment of income tax, so a certain scale of debt can not only increase the financial strength of the enterprise, but also reduce the amount of corporate income tax payable, thus playing a leverage effect.

4 The term is different. Equity financing generally has no fixed term, so investors cannot withdraw from the financing unit, but can only transfer their equity; Debt financing generally has a fixed term, after which the principal must be returned.

Equity financing refers to the financing by way of issuance, absorption of direct investment, issuance and use of retained earnings, which are the three basic forms of equity financing.

Pros:1Equity financing is a stable capital base for a business: equity capital does not have a fixed maturity date and does not need to be repaid, unless it is possible to repay it when the company is liquidated.

2.Equity financing is the basis for the good reputation of the enterprise: equity capital, as the most basic capital of the enterprise, represents the capital strength of the company, and is the basis for the credibility of the enterprise and other units to carry out business operations and business activities.

At the same time, equity capital is also the basis for other forms of financing, especially for debt financing, including bank borrowings, issuing corporate bonds, etc.

3.The financial risk of the enterprise is small: the equity capital does not need to be repaid during the normal operation period of the enterprise, and there is no financial risk of repayment of principal and interest.

Compared with debt capital, equity capital has fewer restrictions on raising funds, and there are no special restrictions on the use of capital. In addition, enterprises can decide how much to pay to investors according to their operating conditions and performance, and the burden of capital costs is more flexible.

Cons: 1The burden of capital costs is heavier:

Although the cost of capital burden of equity capital is more flexible, in general, the cost of capital for equity financing is higher than that for debt financing. This is mainly due to the higher risk of investors investing in equity, especially in **, and investors or shareholders demand a higher rate of return. If a company does not pay profits and dividends for a long time, it will affect the market value of the company.

From the perspective of enterprise cost expenditure, dividends and bonuses are paid from after-tax profits, and the capital cost of debt capital is allowed to be deducted before tax. In addition, the costs of issuing and listing common shares are also very large.

2.It is easy to disperse the control of the enterprise:

The use of equity financing, due to the introduction of new investors or new investors, will inevitably lead to a change in the control structure of the enterprise and disperse the control of the enterprise. Frequent changes in control will inevitably affect the personnel changes and decision-making efficiency of the management of the enterprise, and affect the normal operation of the enterprise.

3.The cost of information communication and disclosure is large

As the owner of the enterprise, the investor or shareholder has the right to know the business, financial status, and results of the business. Enterprises need to strengthen the management of their relationship with investors through various channels and ways to protect the rights and interests of investors. In particular, listed companies have a large and scattered shareholders, and can only understand the company's status through the company's public information disclosure, which requires the company to spend more energy, and some also need to set up a special part for the company's information disclosure and investor relations management chain.

Equity financing is an enterprise that obtains funds from shareholders and investors by absorbing direct investment and issuing **. Equity financing forms the equity capital of an enterprise, which is the most basic financing method for an enterprise. Absorbing direct investment, issuance** and using retained earnings are the three basic forms of equity financing.

1. What is the financing of equity pledge.

Equity pledge financing refers to the act of the pledgee using the intangible asset of equity as the subject matter of the pledge to provide security for its own or others' debts. The pledge of the right to take the stock and silver as a guarantee condition for providing credit services to enterprises has increased the financing opportunities for small and medium-sized enterprises. For small and medium-sized enterprises, in the past, the main channel of debt financing was to obtain bank loans through real estate mortgages.

Since most small and medium-sized enterprises do not have too many physical assets for collateral, in order to help these small and medium-sized enterprises obtain funds, they propose to use enterprise equity pledge for financing.

Equity pledge financing transforms static equity assets into dynamic assets and helps small and medium-sized enterprises solve financing difficulties. However, it also faces the constraints of a variety of factors, one is the lack of policy guidance and the lack of authoritative guidance documents to ensure it; Second, the lack of equity trading market for non-listed companies leads to the inability to rely on the market to form an effective equity pricing mechanism, which causes certain difficulties in the evaluation of the equity value of non-listed companies. Third, the participation of banks is insufficient, and the enthusiasm for issuing bank loans is not high.

The premise of equity pledge financing is custody. Through this platform, a set of effective mechanisms for the successful docking of custodians, enterprises and banks will be established to create an evaluation system for screening the credit status of enterprises and the quality of equity, improve and improve the unified and standardized equity trading market, so that the pledgor can use its equity as collateral, and when the debtor fails to perform its debts when due, the creditor can be compensated at a discount on the equity in accordance with the agreement, so as to achieve the purpose of resolving the risk of the creditor and realizing the financing of the pledgee.

2. Advantages and disadvantages of equity financing.

Equity financing refers to the issuance of ** to current shareholders and new shareholders for new projects to raise funds, which can also be called equity financing.

Advantages: When the amount of capital required by the enterprise is relatively large (such as mergers and acquisitions), equity financing has a great advantage, because unlike debt financing, which requires the payment of interest and principal in a large period, but only needs to pay dividends to shareholders when the enterprise is profitable.

Disadvantages: Shares are easily subject to hostile takeovers, resulting in a change of control, and the cost of equity financing is also relatively high.

1. Absorb direct investment. Absorbing direct investment refers to the financing method in which an enterprise absorbs funds from the state, legal entities, natural persons and other investment entities in the form of investment contracts and agreements. This financing method does not take the financing tool as the carrier, and stipulates the rights and obligations of both parties through the signing of an investment contract or investment agreement, which is mainly applicable to non-joint-stock companies to raise equity capital.

Absorbing direct investment is a way of equity financing;

2. Issuance of ordinary shares. Issuance refers to the financing method in which the enterprise obtains funds by offering **, and only shares can be issued**. Issuance** is a form of equity financing;

3. Retain the income of the inspectors. Retained earnings refer to the surplus reserve fund withdrawn from the net profit after tax and the undistributed profits retained from the distributable profits of the enterprise. Retaining and not shouting earnings is a way of equity financing.

Legal basisArticle 9 of the ** Law of the People's Republic of China.

The public offering must meet the conditions stipulated by laws and administrative regulations, and be approved by the ***** supervision and administration agency or the department authorized by the public in accordance with the law;

Without approval in accordance with the law, no unit or individual may publicly issue **. In any of the following circumstances, it is a public offering:

1) Issuing ** to unspecified targets;

2) Issuing ** to a specific target with a cumulative total of more than 200 people;

3) Other issuance acts provided for by laws and administrative regulations.

Non-public offerings** shall not use advertising, public solicitation, or disguised disclosure.

Differences:1The impact on the structure of the enterprise is different. Equity financing increases the owner's equity of the enterprise, and investors may have a significant influence on the enterprise, or even control, and debt financing increases the debt of the enterprise;

2.The risks are different. Equity investment is generally accompanied by a higher risk of early envy, so the profit distribution rate at the end of the period of equity financing is generally higher than the interest rate generated by debt financing.

3.Impact on corporate income tax. At the end of the period, the distribution of profits generated by equity investment is carried out after the income tax is withdrawn, and the interest generated by the debt and tourism bureau's right financing is paid before the income tax is paid, so a certain scale of debt can not only increase the financial strength of the enterprise, but also reduce the amount of enterprise income tax payable, so as to play a leverage effect;

4.The term is different. Equity financing generally has no fixed term, so investors cannot withdraw from the financing unit, but can only transfer the equity, debt financing generally has a fixed term, and the principal must be returned after maturity.

1. The two are essentially different.

Debt funds are obtained by increasing the liabilities of enterprises, such as borrowing from banks, issuing bonds, borrowing from suppliers, etc.; Equity funds are obtained by increasing the owner's equity of the enterprise, such as issuance, capital increase and share expansion, and profit retention.

2. The interest that needs to be repaid is different between the two.

Debt funds must be repaid when due, and interest is generally paid; Equity funds are the company's own funds, which do not need to be repaid and do not need to pay interest, but they can be distributed and distributed according to the operation of the enterprise.

3. The enterprises applicable to the two are different.

The use of debt funds can radicalize enterprises to dare to borrow more debt funds, so that enterprises have the potential for rapid development, but at the same time, it will also increase the operating costs and debt risks of enterprises. Interest on debt can be deducted against income tax, while equity funds cannot, so the cost of general debt funds is lower than the cost of equity funds.

Debt financing: the lowest cost of capital, the greatest flexibility of financing, the speed of financing, the many conditions for restricting the speed of change, and the limited amount of financing. Equity Financing:

The cost of capital is the highest, the ability to form production capacity as soon as possible, the ease of information communication, and the concentration of corporate control are not conducive to corporate governance and property rights transactions.

In layman's terms, the money for equity financing does not need to be repaid, but it must participate in the profit distribution of the enterprise, such as ** financing; Debt financing borrows money that needs to be repaid with principal and interest, such as bond financing. It may not be very specialized and terministic, but the words are not coarse.