1 How a company raises money

A company has two broad sources of long-term finance. Equity is raised by issuing shares: the holder becomes a member, shares in profits by dividend and in the residue on winding up, and bears the risk of loss. Debt is raised by borrowing: the holder becomes a creditor, is entitled to interest and repayment whatever the profits, and ranks ahead of members if the company fails. SharesDebentures Holder isMember (owner)Creditor ReturnDividend, only if declaredInterest, payable as agreed On winding upPaid lastPaid before members VotingGenerally yesGenerally no SecurityUnsecured by natureMay be secured on assets