Equity

Also called Shares, Shareholding, Stock

Ownership of the company, expressed as shares. The most expensive money you will ever raise, and sometimes the right money.

What it means

Equity is a share in the ownership of a company. Shareholders own a proportion of it, share in its profits through dividends, vote on certain decisions, and receive a share of the proceeds if it is sold.

Raising equity means selling part of the company for cash. Unlike a loan, there is nothing to repay — and nothing that ever expires either.

Why it matters

Equity is permanent. A loan ends; a shareholder does not. Ten per cent given away in year one is ten per cent of the sale price in year ten, and that is often the largest cheque of the founder's life.

That is not an argument against it. It is an argument for knowing what it costs before deciding it is "free" because there are no repayments.

What it looks like in practice

The arithmetic that matters is dilution: if you own 100% and issue new shares for 20% of the enlarged company, you now own 80%, and so does every future round.

Different share classes carry different rights — voting, dividend, and priority on a sale. "Ordinary shares" is not a single thing, and preference shares can take the first slice of any exit.

What to watch out for

Giving equity to early helpers, advisers or a first developer with no vesting. Someone who leaves after three months keeping 10% is a problem that follows the company into every future funding round.

Investors will ask to see a clean cap table. Untidy early equity is one of the most common reasons a first raise stalls.

Where to get proper advice

A corporate solicitor before you issue shares to anyone. The British Business Bank's business guidance is a neutral guide to whether equity is the right instrument at all.