What is the relationship between equity financing and ownership?

Equity financing grants ownership in the company because when a business raises funds through the sale of equity, it offers shares of its ownership to investors. These investors become shareholders and, as a result, have a claim on a portion of the company's assets and earnings, proportionate to their ownership stake.

Issuing shares allows a company to raise capital without incurring debt, but it also means that the original owners will now share control and profits with the new shareholders. Equity financing is a fundamental mechanism for enabling individuals and institutions to invest in a company, thereby aligning their interests with the company's success. Shareholders typically participate in decisions through voting rights and may receive dividends based on company performance.

Ownership is a key aspect of equity financing, as it differentiates it from other forms of funding like debt financing, where lenders do not receive any ownership rights in exchange for their loan. By understanding this relationship, one can appreciate how equity financing influences the dynamics of business ownership and governance.