Equity capital

Equity capital is the most common form of financing used when setting up a company. It refers to resources you have invested in your business. You can do this not only when establishing your company, but also later, when you reinvest some of your profits or implement a capital increase.

Sources of equity capital

Your business’s equity capital may come from:

  • a contribution of personal savings or a cash contribution;
  • a contribution in kind, such as equipment and material you still own (e.g. a building, a car, etc.);
  • a combination of cash contributions and contributions in kind;
  • a contribution in cash or in kind from company associates or shareholders with a view to creating new capital with existing or new shareholders;
  • financing from a reserve (self-financing) – the company’s profits are not paid out to shareholders but instead remain in the business to finance its growth.

Financing using equity capital has certain benefits:

Unlike external resources, equity capital does not have to be paid back by a specific date.

Having sufficient equity capital is one of the conditions for obtaining a loan, with financial institutions specifically using the ratio of equity capital to external resources to determine the personal contributionand to decide whether or not to issue a loan.

In addition to non-material investments in terms of time, work, discussion, design, etc., the initial funds are always provided by the sponsor of the project and the sponsor’s close associates.

However, using financing from these close associates is not without its risks. Numerous tensions can arise, especially if the sponsor of the project does not manage to bring the project to a successful conclusion.