New Jersey corporations generate 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 ways are through a stock purchase and/or debt financing. Chances are you have heard the term(s) stocks and corporate bonds, but you may not have known each is a form of equity financing and debt financing respectively.
Equity financing involves a corporation offering its stock for sale. When an investor purchases stock, he/she effectively purchases an ownership interest in the corporation. Each share has (a) value. The shareholder’s ownership interest in the corporation is dependent on the number of shares of stock the investor acquires. There are typically two types of stock issued, common stock and preferred stock.
Debt financing is a different type of investment opportunity in a corporation. Debt financing 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 and enjoy less privileges than shareholders when it comes to voting, participating in management and operational decisions, and other rights typically associated with stock ownership.
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By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Shareholders Attorney