SHARE CAPITAL AND DEBT BUSINESS VOCABULARY IN USE

 

BUSINESS VOCABULARY IN USE 32. SHARE CAPITAL AND DEBT

 

A Capital Capital is the money that a company uses to operate and develop. There are two main ways in which a company can raise capital, that is find the money it needs: it can use share capital or loan capital, from investors. These are people or organizations who invest in the company; they put money in hoping to make more money. B Share capital Share capital is contributed by shareholders who put up money and hold shares in the company. Each share represents ownership of a small proportion of the company. Shareholders receive periodic payments called dividends, usually based on the company’s profit during the relevant period. Capital in the form of shares is also called  equity. A venture capitalist is someone who puts up money for a lot of new companies. C Loan capital Investors can also lend money, but then they do not own a small part of the company. This is loan capital, and an investor or a financial institution lending money in this way is a lender. The company borrowing is the borrower and may refer to the money as borrowing or debt. The total amount of debt that a company has is its indebtedness. D Security Lending to companies is often in the form of bonds or debentures, loans with special conditions. One condition is that the borrower must have collateral or security: that is, if the borrower cannot repay the loan, the lender can take equipment or property, and sell it in order to get their money back. This may be an asset which was bought with the loan. E Leverage EXERCISES 32.1 Choose the correct expressions in brackets from A, B and C opposite to complete the text. I started 15 years ago with (1 capital/ dividends) of $A50,000. We had one small restaurant in Sydney and now we have twenty throughout Australia. My (2 borrowers/ shareholders) were members of the family: my parents, brothers and sisters all put up money. They didn’t receive any (3 dividends/ shares) for the first five years: we put all our profits back into the company! Now we want to increase the amount of (4 equity/ dividends), so we are looking for outside (5 borrowers/ lenders). 32.2 Answer these questions, using expressions from C, D and E opposite. 1. You want to raise money for your company, but you do not want to sell shares. What can you use instead? (2 expressions) 2. You want to raise money and you want to reassure lenders that they will get their money back if your company cannot repay. What would you offer them? (2 expressions)

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