When acquiring capital through equity financing, the company receives equity through one or more partners, with the funds originating from outside of the company. The need for this type of financing occurs when creating the company and at the time of capital increases.
Equity financing includes cash contributions, and contributions in kind or in rights.
Fundamentally, this means that when providing equity financing, lenders obtain a right to the profits, assets and liquidation proceeds. They are also joint guarantors of the risks of the company, which, depending on the legal structure, may be limited to the amount of the contribution. Moreover, lenders have the right to receive information, intervene and make joint decisions. Capital is generally available for long periods, but capital may also be provided for short durations for one-person businesses and partnerships (depending on the contractual terms).