What are the ways in which a private limited company can raise finance?
The financial system of a company is its lifeblood. An organization’s survival and growth depend on it. While public limited companies can raise funds easily by offering securities to the public without restrictions, private companies have a harder time raising funds since public invitations are prohibited and there is a limit on the number of members. A private limited company can raise funds in a variety of ways in this article.
Private companies have three traditional types of funding options
As a result of additional capital issuance
Businesses with a share capital may increase their subscribed share capital at any time by issuing more shares, which may be offered in the following ways according to section 62 of the Companies Act 2013:
- Rights Issue
- Private Placement
Loans and debentures
Directors and their relatives can lend unsecured loans to a company at interest-free or interest-bearing rates. Bank loans are also common. These funds, however, are raised at a fixed interest rate over a predetermined period. In order for a bank to lend money, a resolution must be passed by the board.
Investing through angel investors
A share of a company’s ownership is exchanged for money from angel investors. Angel investors are typically private equity experts, which means companies seeking capital must have current financial statements, a business plan, and a plausible exit strategy. It is common for angel investors to invest only in companies with a high potential for exponential growth and a desire to go public.
Compared to public companies, private enterprises have more options when it comes to raising finance. There are a variety of options available, so it’s crucial to determine which one will work best for your company and allow it to grow profitably while remaining true to its mission.