Effective business activity is impossible without investing in its development. Investments can be carried out both at the expense of their own funds and by attracting third-party investments.
Capital classification
In addition to own funds, investments can be carried out at the expense of attracted or borrowed funds. According to international standards, the capital structure is divided into own and attracted, i.e. borrowed capital is not separately allocated. Russian legislation in the field of investment activities also does not contain the concept of borrowed capital.
Equity capital is formed from internal and external sources. Equity capital is formed at the expense of the authorized capital; retained earnings that remained at the disposal of the company; additional capital and reserve capital.
The attracted capital arises when mobilizing share capital, attracting additional capital, gratuitous assistance, converting borrowed funds into own funds, targeted financing, and other external sources.
Raised funds can be mobilized in several ways. Among them - raising capital in the stock markets, in the market for credit resources or through targeted government funding. The most popular way to attract investment is by issuing securities.
The concept of attracted capital and its difference from borrowed capital
According to the point of view existing among economists, attracted capital is a broader concept than borrowed. In addition to borrowings, it includes contributions to the additional or authorized capital, or the issue of shares, etc. Another difference is the conditions for the return of investments.
Borrowed funds are provided on pre-agreed conditions and imply their obligatory return. As a rule, they involve payment of interest for their provision. A classic example of borrowed funds is lending, which is characterized by interest rates for each year of using the borrowed funds. You can borrow funds from banks, government or suppliers. Also in the number of borrowed funds include promissory notes, leasing, credit notes, securitized assets.
The funds raised can be provided on a permanent basis and involve the payment of income to investors (for example, in the form of interest, dividends or part of the profit). In practice, these funds may not return to their owners. For example, in the case of the depreciation of the shares owned by the investor or the bankruptcy of the companies in which the money was invested.
In addition to borrowed funds, the number of attracted funds includes funds from the issue of securities (shares or bonds), shares in the authorized capital, as well as targeted government funding or budget subsidies. The raised capital can be divided into short-term (for a period of up to a year) and long-term.
