methods of raising capital - equity, debt

1. Methods of raising capital for LLC & Cooperatives
Section 9 Objective 4
Describe the various methods of raising capital available to limited liability
companies and co-operatives

3. Methods of raising capital for
LLC and Co-operatives
The capital of LLC and Co-operatives organisations is
raised by the issue of shares
• In private companies they are sold to family
members, business partners and sometimes
employees
• In public companies for LLC they are offered to the
public for sale

4. Methods of raising capital for LLC and
Cooperatives
• Instead of raising capital by issuing additional
shares, LLCs may secure debt capital through
agencies for debentures or bank loans
• Some co-operatives on the other hand offer loans
• Another form of additional capital for both types of
organisations is the yearly increase of reserves
(funds set aside for a specific purpose) and income
known as
– retained earnings for companies and undistributed
surplus for co-operatives

5. Methods of raising capital for LLC and
Co-operatives
• LLC-Methods of raising capital – Equity- Preference
Shares
• Before shares are issued or raised by LLC, they must
have the amount of capital a company can issue. This is
known as authorised share capital
• Preference shares are of two types, cumulative and
non-cumulative.
• They are placed by LLCs to appeal to potential investors
because provisions are made for them to have priority
over common stock is certain areas such as
– Distribution of dividends
– In the event of bankruptcy

6. Methods of raising capital
• – Equity – Ordinary shares
• Dividends are paid to ordinary shareholders after
preference shareholders
• These are known as equity shares because the
profits available for paying dividends will be divided
equally among the number of shares issued to
potential shareholders
• Shareholders in this group have voting rights at the
companies Annual General Meeting (AGM)

7. Methods of raising capital
• Co-operatives – raising of capital –shares
–The sources of capital for co-operatives are from
members who
• Purchase shares
• Purchase goods and services
• Capital is also obtained from the organisation’s
yearly net earnings and reserves funds set aside
• Loans given by co-operatives to members
• Interest received from loans given

8. Methods of raising capital for LLC and
Co-operatives
• Co-operatives raising capital – shares
– Other sources of finance from income such as:
• receiving grants
• annual member ship fees
• interest received from investments

10. Methods of raising capital for LLC and
Co-operatives
• Methods of raising capital – debt – debentures
– This is cash loaned to LLCs for a period of time
– It is debt payable by the company to creditors
– The loans carry a fixed rate of interest

11. Methods of raising capital for LLC and
Co-operatives
• LLC’s Shareholders’ equity – Elements – share
capital
–Preference and ordinary shares are paid in as
capital
• These capitals are the amount of cash and other
assets paid in to LLCs by shareholders in exchange for
shares

12. Methods of raising capital for LLC and
Co-operatives
• LLC’s Shareholders’ equity – Elements – reserves
–Capital reserve
• Is the amount created for share premium (to record
shares issued in excess or over the par value)
• Can also be created for revaluation of fixed assets

13. Methods of raising capital for LLC and
Co-operatives
• Retained earnings (revenue reserves)-LLC
– Is net income that is retained in a corporation
each year for any purpose decided by
management
– To be used for dividends

16. Methods of raising capital
• Co-operatives – Shareholders’ equity - Elements –
share capital
– Low cost shares issued (no limitations as to the amount
acquired)
– Registration fees (if it exists)
– End of the year net earnings

17. Methods of raising capital for LLC and
Co-operatives
• Co-operatives- Shareholders’ equity – Elements –
reserves
–Statutory reserve
• Funds out of profits required by law to be set aside
for the benefits of members such as for
• Education for members
• Dividends to be paid to members