What does "equity financing" involve?

Equity financing involves raising capital for a company through the sale of shares of stock. This method allows a company to obtain funds without the obligation of repayment, which is typical of debt financing. When a business sells shares, investors become partial owners of the company, gaining a stake in its future profits and decision-making. This form of financing not only provides the necessary funds for expansion or operational needs but also aligns the interests of the investors with the long-term success of the business, as their returns depend on the company performing well.

The other options relate to different sources of financing: borrowing money from banks indicates debt financing, reinvesting profits pertains to retained earnings, and utilizing venture capital suggests investment from private equity, which can involve various agreements beyond simple equity financing. Each of these methods has different implications for a company’s capital structure and financial obligations.