How can a corporation raise equity capital?

• A. Issue stock
• B. Borrow from a bank
• C. Issue bonds
• D. Buy back shares

Answer: (A)

Equity financing means raising capital by selling ownership in the company. The way to raise equity capital is to issue stock, selling shares to investors, which brings cash into the business and increases shareholders’ equity. Borrowing from a bank or issuing bonds are debt financing—they raise cash but create a liability to be repaid with interest, not equity. Buying back shares uses cash to repurchase its own stock and creates treasury stock, which reduces, rather than increases, shareholders’ equity. Issuing stock can be ordinary or preferred stock, depending on the rights given to investors.