Question

1. What are the similarities and differences between equity capital in investor-owned firms and fund capital in not-for-profit firms?
2. Describe the primary means by which investor-owned firms raise new equity capital.

Answer 1

In a not-for-profit firm, equity is mainly the fund raised by the firm. In investor owned firms as well as not for profit firms, equity is basically the assets retained after paying debts. Equity is also called funds balance for non-profit organisations. Equity reflects the financial strength of the organisation in both cases. In case of a not-for-profit firm, we have " Total Liabilities and fund balance" in place of "Total Liabilities and equity" for investor-owned firms which is equal to total assets. Not-for-profit firms are subject to nonprofit corporation laws of the state versus business corporation laws for  investor-owned firms.

The primary source through which investor-owned firms raise new equity capital is through IPO or public issue. Equity raising can be sourced through other channels like entrepreneur's friends or few chosen investors.