What does equity financing involve?

Equity financing involves raising capital by issuing shares of stock, which allows investors to purchase ownership in the company. When a company opts for equity financing, it invites investors to become shareholders in exchange for capital that the business can use for growth, development, or other operational needs. Unlike debt financing, where funds are borrowed and must be repaid with interest, equity financing does not involve incurring a debt obligation; rather, the capital raised becomes part of the company's equity. The shareholders benefit by potentially receiving dividends and an increase in the value of their shares if the company performs well.

Utilizing other financing methods, such as borrowing from banks, investing personal savings, or obtaining government grants, does not fit the definition of equity financing since they involve different mechanisms for raising funds, primarily focused on loans or grants rather than ownership sharing in the company.