What is equity financing?

Equity financing refers to the process of raising capital by selling shares of company stock to investors. When a company sells equity, it allows investors to purchase ownership stakes in the business. This method provides the business with funds without the obligation to repay a specific amount or pay interest, which is a characteristic of debt financing. Instead, investors gain a claim on the company’s future profits and may have voting rights, depending on the type of shares they purchase.

Utilizing equity financing can be particularly advantageous for companies looking to expand or undertake significant projects without being burdened by debt. It also aligns the interests of shareholders with the company's growth, as both parties benefit from increased profitability. Overall, equity financing is a critical component of a company's capital structure and plays a vital role in its long-term sustainability and growth strategy.