The use of ordinary shares in the venture capital operations

When raising capital for a business venture, a company can increase the share of debt, equity or a combination of both. Debt capital is money loaned to the company at an interest rate agreed for a fixed period of time. Conversely, equity capital is money invested by the owners (shareholders) for use in business operations that need not be repaid. Combinations include convertible securities which may be debt that can be converted into shares at a certain point in the future.

The simplest form of equity shares. Common stock has many distinguishing factors as follows:

- The common stock is not convertible into another type of security

- Each share has one vote

- Dividends are payable without limit but only when declared by the Board of Directors

- In liquidation, common shareholders are the last priority to which to distribute assets

In the operations of venture capital, there may be two types of shares that are issued. The first is Class A common shares, which is like preferred shares without voting rights in some statutes require special shares labeled "preferred." A second type of common shares subject to ordinary shares. While this type of action is not used very frequently, it allows companies to get cheap shares in the hands of key employees to a minimum tax cost.

Determine which type of capital to raise and how to structure the financing transaction is of fundamental importance to growing ventures. As such, it is essential to understand the key terms and consult with appropriate legal and business advisors when embarking on the capital raising process....