By Fredrick P. Niemann, Esq., a NJ Shareholders Attorney
New Jersey corporations create funding and cash flow by offering prospective shareholders an investment opportunity with the corporation. There are different ways in which this is done, but two of the most common are through equity and debt financing. Chances are you have heard of stocks and bonds, but you may not have known these are forms of equity financing and debt financing respectively.
Equity financing involves a corporation distributing stock in the corporation. When an investor purchases stock, he/she effectively purchases an ownership interest in the corporation. Each share has a value and the ownership interest in the corporation is dependent on the value of stock and amount of shares an investor owns. There are typically two types of stock issued, common stock and preferred stock, with preferred stockholders having certain special benefits over those who own mere common stock.
Debt financing is a different type of investment opportunity that investors are presented with. It involves loaning money to the corporation in exchange for a debt security, typically known as a bond. Bond holders usually are limited in their rights, enjoying many less privileges than shareholders when it comes to voting, participating in management and operational decision, and other rights typically associated with stock ownership.
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