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Entrepreneurship (8503)

Semester: Spring, 2022

Level: M. Com

ASSIGNMENT No. 2

Tutor’s Name : MAMOONA ANAM

Student Name : AMNA BIBI
Father’s Name : MUHAMMAD LATIF
Address : VILLAGE TONKEN P.O GULBAHAR
SIALKOT
Mobile No. : +923263153016
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Table of content
1. Introduction
2. Important subtopics
3. Practical aspects of the topic
4. Review of theoretical and practical situation
5. Merit and demerits
6. Conclusion and recommendation
7. Annex, if any
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Abstract
Small firms may piece together capital from a number of various sources, including equity
investors, friends and family, and bank loans. Learn more about startup and small business
financing possibilities in this article, along with some advice on what you should know about
securities reregulation. simpler financial methods for raising capital.

Acknowledgment
I have taken interest in this Assignment. Anyway, could never have been possible without the thoughtful
help and help of numerous people. Because of each of them, I may want to be more sincere. We make a
move to thank every one of the people who have helped to us and directed, energized in various ways in
our course and Assignment. I might want to offer my thanks towards my group of for their activity and
support which help me in fulfilment of this task.

Special thanks to my teacher who enable me to complete my assignment

Thank you so much.

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MOBNEY RAISING AND LEGEL ISSUE

Introduction of money raising:

Raising money makes the process of buying assets easier. Raising money is essential because it
makes provisions for the working capital needed for the day-to-day operation of the business,
which speeds up the job.

Way to raise money

Debts and equity:

Companies typically raise funds from outside sources through either debt or stock. When a bank or
investor lends money to a firm in exchange for a promise to repay the money, usually with interest and
according to predetermined terms, the company uses debt.

In fact, a business employs equity when a shareholder offers it cash in exchange for ownership.

The advantage of employing debt over equity is that a founder still owns a portion of the business.

The company must repay both the principal loan amount and interest on the loan, which is a drawback.
Additionally, the profit ratio and overall valuation of the company may suffer as a result of debt.

The advantage of using equity over debt is that a business does not have to pay back the money.
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Who to raise from

Friends and family

Because they are closest to you and more likely to support your business concept than anyone
else, friends and family are frequently a terrific source of financial funding (and in your ability to
make the idea a reality). In the form of gifts, loans, or shares, founders might raise money from
friends and family.

Gifts
Up to $14,000 can be given to you by a friend or family member tax-free each year, with no expectation
that you will pay it back.

Business loan
Friends and family could lend you money at rates below market value because they value your business
endeavors more than their own financial gain. The drawback is that if your firm fails, you run the danger
of losing your personal connections. You might choose to set up this form of funding as a one-year, high-
interest loan to better reduce this danger.

Equity investors
Additionally, a corporation may make equity investors out of friends and family by selling them company
shares. In this case, a friend or relative of the lender joins the company as a co-owner. Family and
friends should avoid this because there is no assurance that they will receive their money back. When
corporations enter into these "investment contracts," which can incur significant costs in professional
services to create and register the investments, securities laws also mandate that they adhere to a
number of requirements.
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Legal issues in sale of security to investors

Whereas the majority of businesspeople are aware that the offering and sale of securities are regulated
by both federal and state law, many still think that these laws only apply to the offers of large
corporations. They believe that small businesses are free from these laws. In actuality, all issuers and
their owners are subject to these regulations (particularly, the federal Securities Act of 1933, the federal
Securities Exchange Act of 1934, and state "Blue Sky" statutes).

In genral the authorities and associated law like SEC restrict the issue of security without registration.
The SEC also cracks down on fraudulent activities related to these offerings, including not just clearly
incorrect statements but also the simple absence of essential information regarding the investment. Due
to difficult and costly the law gives exceptions in some cases to registration requirements. even
these offering also can be the cause of fraudulent.
The Securities Act of 1933 includes the so-called intrastate offering exemption as one such
exemption. The Act excludes transactions that are entirely local because it is based on the basic
idea that the federal government can only constitutionally regulate interstate commerce.
However, the range of this exception is very limited. Moreover, all offerees must be residents
of the same state as all persons who purchase the securities.
Additionally, the issuer of the securities must be a company organized in accordance with the
laws of that state (disqualifying many Delaware corporations), have the majority of its assets
there, and conduct the majority of its business there. These limitations mean that only the
smallest of offerings may benefit from this exemption. However, the exemption merely
exempts the offering from SEC registration. State registration may still be expensive and time-
consuming depending on the state's securities rules.
The private placement exception, which exempts transactions "not involving a public offering"
from registration under the federal act, is the most widely used exemption. The SEC has
partially relied on this exception when establishing regulations designed to make it easier for
small businesses to raise capital through small offerings.
As of the time of writing, Regulation of the Act exempts from registration any offering of
securities valued at less than $1,000,000. The rule limits the number of offerees at 35 and
permits an unlimited number of authorized investors. Accredited investors for these reasons
are specific institutions and people with net worth or yearly income levels that support the case
for less protection. Even without the regulation, issuers can still claim under the Act that
transactions "not constituting a public offering" include offerings made only to relatively
knowledgeable investors who have a history of doing business with the issuer.
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Merits and demerits

Merits

☺ Less burden:
☺ There is no loan to repay with equity financing. The company is exempt from making monthly
loan payments, which can be crucial if the enterprise doesn't start out profitable. You are then
free to invest more money in your expanding company as a result.

☺ Credit issue gone:

☺ Equity may be preferred or more suited than debt financing if you lack creditworthiness
due to a bad credit history or a lack of financial experience.

☺ Learn and gain from partners:

☺ With equity financing, you could create informal connections with people who have more skill
or experience. Some might be well-connected, giving your company the chance to get access to
their expertise and network of contacts.

Demerits

 Share profit:
 With equity financing, you could create informal connections with people who have more skill
or experience. Some might be well-connected, giving your company the chance to get access to
their expertise and network of contacts.

 Loss of control:
 You must share control of the company in exchange for equity financing and all of its
potential benefits.

 Possibility of conflict:
 If there are differences in vision, management style, or methods of operating the business,
sharing ownership and having to cooperate with others may cause considerable friction or even
conflict. It may be something to give considerable thought to.
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Conclusion
Here I come to an end the ResearchWorks of raise money and legal issues. I learn so many
things about many raising in business. And this is the best experience of mine in this research.
On this research so many types and merits and demerits of the topic discussed and I it all show
that the process of raising money without information of legal issues go waist as these two
factors go hand to hand.

Recommendation
After the analysis of all research work, I come to the point that a business individual must considered all
legal issue while raising money. Chose best method of raising money.
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References
https://consciousmagazine.co/an-introduction-to-raising-money-for-your-startup/
https://www.thehartford.com/business-insurance/strategy/business-financing/equity-financing
https://www.wikipedia.org/