Report on capital infusion and shareholders agreement
1.) the possibilities how the investment should be made into your company.
a. Debt
To finance through debt, the entrepreneur applies to and contracts with a person or an
institution that has money, and borrows it, signing a promissory note, a document agreeing
to repay a certain sum of money by a specified date.
Interest is determined as a percentage of the loan principal. The principal is the amount of
the loan or outstanding balance on the loan amount, not including interest. Typically the
borrower makes monthly payments until the loan is fully paid. The term, or length, of the
loan generally depends on what is being financed, with working capital having the shortest
term and real estate the longest.
The lender essentially has no say in the operations of the business, as long as the loan
payments are made on time and loan terms are met. They will have a say in how the funds
are initially disbursed and may set restrictions. The payments are predictable, although
they may vary with changes in key interest rate measures, if the interest rate is variable
rather than fixed. If the loan payments are not made in a timely way, the lender can force
the business into liquidation or bankruptcy, even if that loan balance is only a fraction of
what the business is worth. Also the lender can take the home and personal possessions of
the owner, depending on the agreement.
Debt should be carefully considered by the beginning entrepreneur, because it often takes
time for a new business to generate cash for repayment. One risk of debt is that failure to
make loan payments can destroy the business before it can generate positive cash flow.
b. Equity Financing
Equity means that, in return for money, an investor will receive a percent-age of ownership
in a company. The equity investor assumes greater risk than the debt lender. If the business
does not make a profit, neither does the investor. The equity investor cannot force the
business into bankruptcy to get back the investment. If creditors force a business into
bankruptcy, equity investors have a claim on whatever is left over after the debt lenders
have been paid. The potential for return is also higher. The equity investor should make an
investment back many times over if the business prospers.
Money raised via equity does not have to be paid back unless the business is successful.
Equity investors may offer helpful advice and provide valuable contacts. However, if the
