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August 17, 2016 Registrationwala

Funding in the private Limited Companies

Private Limited Company

Funding in the private Limited Companies

Every business entity needs funds whether from owners or from an outsider, but in either case, it is an indispensable requirement to carry on business. There are the different ways to raise funds but what matter is the source of funds because everyone has its own comfort level to get the source of funds due to advantage and disadvantage of the source.

Out of available sources of funds, private equity (PE) is currently in vogue. This option normally availed by the matured companies. These transactions are known as PIPEs transaction (Private Investment in Private Equity).

Whenever private limited companies are in need of funds then they think about two options which could either go for Initial Public Offer (IPO) or find out a new private investor. Out of these two options first one i.e. going for IPO is a cumbersome exercise because it requires a lot of legal documents and other formalities, and if a company is private limited companies then it has to be converted into public limited companies because only the public limited company can go for listing of shares.

Sometimes, PIPEs transactions are conducted as acquisitions of the company. Private investor sometimes invests so heavily that major chunk of equity ownership held by them. Therefore, founder of the companies is given employment agreement, although they hold the minor equity stakes.

Sometimes, these deals are so rewarding for founders because private investor value the shares very high.

Companies especially private limited companies need funds because of certain reasons such as the expansion of the business, acquiring a new technology etc. Therefore, sometimes when the company realise that there is a lack of funds then instead of raising funds they go for strategic alliance and utilise other partiesí resources. The most common alliance is a Joint Venture. In joint venture both the parties works mutually and take the advantage of each otherís resources. In joint venture agreement, other partyís motto is not to control the business rather contribute to the business. A joint venture can be considered as a partnership between two companies which gives birth to the new entity where both the companies pool their resources to attain the common objectives. The contribution by the either party can be in different forms such as infusing fresh capital, intellectual properties e.g. trademark, copyright, patent etc. physical assets, property or employees.

Conclusion

These are two different types of funding option available especially for private limited companies. Besides these sources, traditional sources are always available such as bank loan, overdraft etc.

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