Ordinary shares are proprietor's capital, and they normally
carry full voting rights. They also carry the greatest risk and
potentially the greatest reward, for two reasons. The first is that
they are rewarded in the form of dividends after all other costs
have been met. The second is that they are entitled to any surplus
that remains after all other claims to capital have been met if the
company is wound up. Certain classes of ordinary shares may carry
deferred or preferred rights in certain respects.
Preference shares give their holders certain rights in priority to
the ordinary shareholders, especially as regards entitlement to
dividends and entitlement to repayment of capital if the company is
wound up. They are normally rewarded at a fixed rate or dividend but may
have rights to participate in profits by way of further dividend. Except
in special circumstances, they do not normally carry voting rights.
Sometimes, preference shares carry conversion and/or redemption rights
enabling the holders either to convert their investment into ordinary
shares or to realize it at a some future date.
Loans
may be secured on the company's assets. In addition, they may be converted
later into ordinary shares. They rank ahead of shares for the repayment
of capital. The interest is at a fixed rate irrespective of the
company's profits or losses and may be subject to periodic review...
More
There are variations within each of these classes, and there may also be
other elements in the financing package.
Timing your Financing
Most popular strategy is staged financing. This is a process of timing
each
stage
of financing to coincide with the achievement of a significant
milestone.
→
Startup Business Plan
