The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions, Second Edition

CHAPTER 6

Equity and Debt Financings: Documentation and Regulatory Sources of Capital and What to Expect

Understanding basic definitions and characteristics of debt and equity is fundamental to the financing process and fund-raising activities. Recognition of securities regulatory compliance goes hand in hand with an understanding of the underlying debt and equity components of a company’s capital structure. This chapter provides detailed guidance into the principal drivers behind the negotiation and structuring of the terms and conditions of debt and equity instruments, as well as an overview of certain securities regulations and their impact on the issuance of debt and equity in connection with the capitalization of a company.

These guidelines can be used as a checklist for entering into equity and debt financing transactions. A solid understanding of these issues will enhance your negotiating, but is not a substitute for legal counsel and other advisers who should be hired in accordance with your specific situation.

Though there is some redundancy in the content of Chapter 6 and that of Chapter 5, the authors feel that the presentation of each is important to provide a complete understanding of the financing process and potential issues. In addition, each of these chapters can be used as a reference without reading the other.

BASIC DEFINITION OF DEBT AND EQUITY

Management has two basic choices that relate to the type of capital chosen to finance their company. The two choices ...